from BTAB's Jeff Hines and Bo Fifer: WWCA: Too Early To Speculate, But What The Heck
HIGHLIGHTS:
-- After round #5 of the PCS auction, Cook-Inlet/VoiceStream had high
bids (totalling $79 million) in several major markets including
Chicago, Dallas and St. Louis (covering almost 22 million people or
POPs) implying a per POP bid of just $3.60.
-- While 5 rounds of an auction that could go on for weeks and weeks is
not likely indicative (in any way) in regards to how the auction may
end, it is likely worthwhile to examine what the stock implications
could be for current top bidder Cook-Inlet/VoiceStream.
-- WHAT ARE THE IMPLICATIONS TO WESTERN WIRELESS / VOICESTREAM EQUITY
HOLDERS REGARDING VOICESTREAM'S PARTICIPATION IN THIS AUCTION?
1. VoiceStream Wireless Corporation is currently the 80.1% owned PCS
operations within Western Wireless Corporation. We expect VoiceStream to
be spun-off into a separate company sometime during 2Q 1999. Currently our
12-month price objective on VoiceStream is $20/share based on our DCF (see
note dated 16-Mar-99 where we established a $41/share price target on pre-
spin Western Wireless Corporation composing of a $21/share price objective
on post-spin Western Wireless Corporation and $20/share on VoiceStream
Wireless Corporation).
2. VoiceStream is a 49.9% equity owner of Cook-Inlet. Cook-Inlet is the
"designated entity" that VoiceStream has bid with in previous auctions set
aside for so called designated entities (e.g., small businesses) and is the
entity bidding in this auction. Cook-Inlet currently holds PCS licenses
across the U.S. covering over 11 million gross POPs.
3. We believe VoiceStream would likely have to contribute 49.9% of the
amount bid by Cook-Inlet/VoiceStream in this auction in terms of a cash
payment to Cook-Inlet (e.g., if the auction had ended after round 5,
approximately $39.5 million). We then believe that Cook-Inlet, given
current market conditions, could raise all additional funds to build-out
the networks, fund startup losses, etc., through outside sources (e.g.,
bank, high yield debt, vendor, etc.).
4. VoiceStream is currently building out PCS properties covering
approximately 29 million POPs and owns proportionate interests in operators
building out approximately 3 million non-duplicated POPs. Thus, total
VoiceStream proportionate POPs are approximately 32 million.
5. Will our price target on VoiceStream change post the auction? It
could. The back of the envelope calculation would be to take any
additional POPs won in this license and compare them to the existing 32
million proportionate POPs. Thus, if Cook-Inlet/VoiceStream were to win
say PCS licenses covering an additional 15 million POPs the number of
proportionate POPs covered by VoiceStream would increase from 32 million to
39.5 million, a 23% increase. While this will not (at least in our model)
result in an exact one-to-one 23% increase in our equity price target it
could, depending on price paid, POPs purchased, timing of roll-outs, each
markets competitive position, financing, etc., result in an increase of up
to 23%. Stay tuned! |
