Airthread Valuation

Valuation of AirThread Connections

As per our assessment, the base case current valuation of AirThread Connections is USD 9.41 billion. This value is a sum of the present values of the expected free cash flows, the terminal value, savings in taxes and expected backhaul costs and AirThread’s non-operating investments and cash. This base case valuation

Valuation of the Free Cash Flow from AirThread’s Operations

We estimate the present value of the cash flows from AirThread’s operations over the next five years i.e from 2008 to 2012 to be USD 1.34 billion. (Refer to table 1.c)

In estimating the present value of the free cash flows from AirThread’s operations, there were two assumptions made. Our first assumption is that we have retained the level of inventory at 18% of ….over the entire five year period. This is the average level of inventory in the previous two years. Estimating the level of inventory was required for projecting the working capital requirements – a key input for estimating cash flows from the operations. (Refer to table 1.a)

The second and more critical assumption pertains to the discount rate used to arrive at the present value of the cash flows expected from AirThread Connection’s operations. For computing the discount rate we think it would be reasonable to use the unlevered beta of comparable companies. Hence, we have used Rocky Mountain Wireless’s market data to compute AirThreads’s unlevered beta (0.78) and subsequently the discount rate of 9.41%. (Refer to table 1.b)

The Terminal Value

As per our estimate, the terminal value of the cash flows after 2012 is USD 4.48 billion.

We think it is reasonable to assume that the perpetual future cash flows (beyond 2012) will be very similar to the past cash flows, times a certain growth factor. Considering this, we have assumed a growth factor of 3% - which is well within the expected growth of the US economy.

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