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Technology Stocks : NEXTEL -- Ignore unavailable to you. Want to Upgrade?

To: Paul Smith who wrote (7823)	10/6/1998 7:15:00 AM
From: John F. Dowd	Respond to of 10227

Dear Paul: As I said it was done simplistically. In a capital intense environment like NXTL's I figured that the debt was representative of imbedded infrastructure and therefore would offset any premium demanded by the unique infrastructural advantages provided by NXTL. On the other hand if you want to include it there are about 5 bill. (18 /share) in various bondds out there (Excite Summary). T offered 23/share and the assumption of debt (how else could they buy a company out- walk away from the debt?). So true there is a lot more debt to be assumed with NXTL but it is also commensurate with the much larger infrastructure necessary to create a nation-wide all digital presence. So I left out the debt consideration. I guess the point is that if T was willing to pay that price for a company with 1/4 the subscriber base no nationwide footprint and arpu's of 43% less than NXTL's and not possessing the licenses and technological innovation of NXTL, NXTL must be worth a heck of a lot more especially if you want an all digital system. That is where the takeover aspect of NXTL hangs in the balance. It is kind of like the battle between ATM and IP that goes on in the voice/data industry as we speak. The buyer will have to be a very savvy digitally oriented entity. JFD

To: Paul Smith who wrote (7823)	10/6/1998 7:16:00 AM
From: Rob Prickett	Respond to of 10227

Paul, The debt does need to be considered in the shareholder valuation. AT&T paid $0.9 B in cash and stock, and assumed $0.6 B in debt. As far as AT&T is concerned, they had to pay $1.6 B to buy the subscribers and network, or $2400/sub. The Vanguard shareholder are the ones who netted $1440/sub. To ratio for Nextel "gross" worth (assets), use the $2400/sub * ARPU ratio * subs. >>> 2400 * 69/40 * about 2.5 M subs = $10.3 B. So, based on this simple calculation, a buyer would pay $10.3 B for Nextel, which includes the debt (I think around $6 B). Nextel shareholder would net about $4.3 B; at 350 M diluted shares, that $12.2 / share. Two comments on the above simplified analysis: 1) Vanguard would probably not get the $1.5 B in today's market. To explain that comment - negotiations for the Vanguard / AT&T deal must have begun months before this announcement, under more favorable market conditions and multiples. So, in today's market, the sale price would be lower, and Nextel shares would pro-rate to, say, $10 / share. 2) Nextel shares command a premium to the $10 figure. This indicates a factor not included in the derivation of the $10. That factor is largely the growth potential for Nextel when compared to Vanguard. Investors (the "big" money and analysts) make financial projections for a company's revenue / earnings stream, which must include a guess as to how subscriber base will grow with time. Then, that money is discounted back to present value and share price. The problem / opportunity with valuing a company like Nextel is the guess as to how the subscriber base, ARPU, expenses, etc. will change with time. Comments, John or Paul?, Rob