Jason: Let's assume you're correct that there will be future competition for wcii, perhaps even from another technological advance. So what?? There is presently competition, and we all know there will be in the future--e.g., TGNT. Our analysis, and that of analysts and the company, is not based on capturing 100% of the market. And, if the risk of some unknown future technological advance makes an investment too risky, I don't see how we could invest in anything. All existing entities are subject to future competition from presently unknown technological advances. Moreover, I'd like to believe that competent and experienced management would be sufficiently prescient to adopt to, indeed embrace, such changes. One example is wcii embracing P-MP.
As to debt, I really don't appreciate your concern. It is certainly true that the debt holders have first call on marginal revenues to the extent of paying the debt service on a current basis. So what?? That's true of all companies with debt. The fact is that projected revenues are more than adequate to meet the debt service. Indeed, there will be plenty "left over" to be EBITDA positive. It's surely not correct that all debt must be repaid prior to shareholder earnings. Assumption of debt is an obviously prudent way of funding one's business plans if it can be obtained at favorable terms. I much prefer the company issuing "semi-junk" payable only in the future rather than equity at 10-15 or even 20 a share and the dilutive effect of that.
As to use of stock for the artt deal, you guys have to be kidding me.
First, use of cash creates a need for debt service--sooner or later--when you're ebitda negative. So, you guys think it would be smart to take on more debt for artt, rather than issuing stock??Fact is, stock is cheap currency as long as the markets continue to have faith in your equity. Look at it this way: one year ago, wcii was 9.75. So, it's getting artt for a fraction of that. I look at companies like WCOM. It's extraordinary growth--and great shareholder rewards--have been fueled by opportunistic acquisitions using equity.I would love to have begun my ownership of WCOM five years ago, and I would be screaming if they had been using cash and debt and draining cash flow. Moreover, once you decide on the deal, the real issue is simply is it cheaper to use cash/debt or equity?? Use of equity merely means it's deemed to be a better deal than whatever terms are available for debt. You guys complained that debt was too expensive. So, you're saying what: they should have increased debt, or they should have passed on a strategic opportunity??Either way, your view is not compelling to me..Regards. |
