To follow up on what I was saying previously, let's look at
the situation using my favorite technique of DCF analysis.
My projected numbers for AOL CF, TWX CF, and the combined
entity (assuming combined only tied at the cash flow line
I.E. companies are entirely separate, no synergies, no
increased sales, no cost reductions, no politics, no
management fights, OK?) :
Year AOL Cf/share TWX Cf/share Entity
1999 0.36 2.40 0.94
2000 0.48 2.65 1.08
2001 0.79 2.94 1.34
2002 1.29 3.26 1.70
2003 2.07 3.62 2.23
2004 3.20 4.02 2.96
2005 4.56 4.46 3.81
2006 6.25 4.95 4.86
2007 8.27 5.49 6.10
2008 10.08 6.08 7.25
2009 12.05 6.75 8.50
TERMINAL 241.07 134.92 170.09
INTRINSIC
VALUE
USING WACC:$48.68 $55.49 $48.64
From an intrinsic valuation standpoint, the merger with
TWX, as well as the baggage of a slower growth rate,
appears to neither help nor hinder. Of course as we all
know, these internets and equities in general do not
adhere to intrinsic value.
Looking at the situation from a Price/cash flow multiple
standpoint, AOL trades at ~ 135 x cf and TWX at ~55.5 x cf.
If we assume the entity will trade at an average of these
multiples (~85x), the merger entity should have a market
value of $80 by june of 2000, $85 by 2001. Of course from a
cf multiple valuation standpoint, aol is better off on its
own but I don't know if a 135X cf multiple will remain
valid in the years to come, which is an assumption required
to say call the merger off...
This is sort of a silly exercise because the merged entity
will not be simply tied to the cash flow line with no other
interactions, i.e. I have not included potential synergies,
increased sales, cost reductions, etc... Regardless, I am
certainly intrigued with buying AOL at the current levels
because of the "other factors" that could add substantially
to the bottom line.
Am I talking to myself here?
tci |
