Gary, I thought Gentleman-Boyle would have something to say on your subjects. In case you don't follow Yahoo, here's his reply;
A reply to Gary Kline of SI Message 5731023
To set a gearing ratio (aka, debt/equity) is to establish a capital sturcture policy. Companies with mature businesses typically do this, as you noted, to take advantage of the use of debt w/respect to taxation policies on debt, interest payments (i.e., debt shields). Based on a company's mission and vision, or growth plans, budgets are forecasted. Optimal cash balances are determined, and appropriate treasury policies are undertaken. Such policies include how to finance (private or public, revolvers or term loans, bullets or laddered maturities, et), dividends, and whhether or not to hedge against a currency because of direct foreign investment in a particular country, or to require payments in a particular currency. Cap structure has a certain degree of comparability among companies that are similar in size, maturity/growth aspects, and that are in the same industry. Capital expenditure intensive industries typically gear higher so that depreciation expenses and tax shields can be used optimally.
The opinion of the analyst (BTY has "too much" cash) means that BTY might wish to expand or undertake certain growth objectives by taking advanntage of debt. That analyst may have insight to BTY's growth plans. Another consideration in the consideration of projection of cash flows is the current interest rate environment in London. Bank loan rates in the UK are competitively priced at LIBOR base plus a fixed spread (London Interbank Offering Rate - similar to how the Prime Lending rate is used as a base for US loan rates. LIBOR will likely be lowered in due time. It behooves suitors to await CLEC consolidation (dominant CLEC's acquiring assets/companies will occur 1st) and to also wait for lower interest rates. Regardless, WCII's goal for having its equity appreciated is to perform beyond plan in its deployment objectives and top-line objectives.
As a CLEC goes through its maturation process, it burns much cash until it turns its EBITDA (operating cash flow or economic benefit from operations) in a positive direction. To get that cash, many of these CLEC's have already issued much junk to get through early stages. Thereafter, as did WCII, preferred and preferred convertible are issued to create a cap structure w/ moderated costs of capitalization. All the while, stock swaps go on for equity and asset purchases. Ultimatley, IMO, the acquirer's potential price offering will hinge on some of the tax attribute carryovers. Assets do not have such carryover considerations. If the company/assets are highly strategic to the acquirer's intetnions, then higher multiples are likely offered (reference T-TCI: on a per sub basis, T paid a 15-20% premium. Also done to prevent bickering.)
The 25% stake is max allowed by FCC for WTO memebers acquiring wireless entities in the US. From April through June, this and the SI threads visited this topic and will provide good reading and links on the subject. As for BTY's point of entry into the US, the AT&T deal is non-exclusive for the next 5 yrs. BTY and Sprint will be honoring cross committments during that period, although, it should be expected that BTY will only use the Sprint partnership to its max benefit, and not a pence more. The ION and AT&T INC projects, as well as T's reorganization after T-TCI only expedites attention given to WCII for its broad presence, offerings, and other elements copmprising value to such a suitor. BOC's too could gain instant national presence with a fixed wireless. I am guessing that SBC or BA will approach TGNT, and that FON or T will approach WCII.
If BTY were to own 25% of WCII, and T were to own the other 75%, the FCC/DOJ/FTC might be amenable. Similarly, if Deutche Telekom and France Telecom were to own a total of 25% of WCII each,and FON were to own the other 75%, the US reviewers might be amenable. Realize that the review process would also include an EU review board. So if progress is vaulting, and analysts and network architects are able to make each other more confident, then price appreciation purely for a buyout should warrant tremendous price appreciation for WCII.
g-b
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