Actually, the EBITDA multiple (counting debt at face value) of a consolidated WCOM/MCIT is about 4x. Yes, WCOM could conceivably buy back some debt at a discount, but I would never assume that in valuing an enterprise. If they were to actually start buying them back in any significant amount, the price would rise.
BTW, as you probably know, the debt of around $30 billion is 3.5x EBITDA, so that's the floor for the multiple. The important thing to remember, however, is that the leverage means small degrees of multiple expansion (in EV multiples) translates to much larger moves in the stock. A 5x EV/EBITDA multiple, for example, would mean roughly a triple in both stocks; 6x puts the stock over $6 again; and 8x translates to around $12.
As perceptions of the risk of debt default wanes, leverage becomes your friend.
As I said the other day, buying WCOM here is like participating in a leveraged buyout of a world class communications company at a bargain-basement price and with liquidity.
Regards,
Bob
PS: Leveraged investing has never been for widows and orphans. |
