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Amtelecom.docx
Amtelecom.docx
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Amtelecom.docx-Executive Summary This case analysi...
Amtelecom.docx-Executive Summary This case analysis considers
Amtelecom.docx-Executive Summary Th...
Amtelecom.docx-Executive Summary This case analysis considers
Page 1
Executive Summary
This case analysis considers the pros and cons of the AGI’s decision to break up the
company to sell the communication business rather the courier business. AGI owns and
operates Amtelecom Communications, regional telecommunications, cable television,
Internet business and ICS Courier, a national fixed-route courier business.
AGI’s stock has been performing poorly because the cash generated by Amtelecom
Communication has been used up to cover losses caused by ICS Courier and as a result of
this Amtelecom Communications capital requirements are not being met.
Therefore, the
board has decided to sell off Amtelecom Communications, through three possible ways
which are: selling to a strategic buyer, initial public offering (IPO) through a common
share offering and IPO through an income trust offering.
As mentioned in the case AGI has 11,405,627 shares outstanding and is currently trading
at $ 1.85 with a market capitalization of $21,100,410 and the Total enterprise value of
$53,700,000 with a net debt of the difference $ 32,599,590.
The TEV for Amtelecom Communications is roughly $ 68 million, and the TEV for ICS
courier is $ 26 million. Using the EBITDA/ TEV industry average adding the two TEV
for both the companies we will have a TEV of $ 94 million and subtracting the net debt
of $ 32 million we will have a net equity value of around $ 62 million. Comparing this
with the TEV value of $ 53 million using the current stock price we can conclude that the
company is undervalued.
AGI decision to break up the company
As our result indicates AGI is undervalued by about $ 9 million using the EBITDA/TEV
multiples. We believe that by breaking up the company, it is the best solution in the short
run rather than trying to restructure the courier business or close it down, which could
potentially destroy shareholders value. Therefore, Stanley Stewart has to convince the
Page 2
board to sell it to a strategic buyer but as the company could not currently find any
strategic buyer the best way is to IPO the Amtelecom Communication
Communication Industry Challenges and Key Success Factors
To successfully run a telecommunication business there is a need for a substantial
investment in equipment and labor. Therefore, the industry is not very easy to get in and
compete with the already established dominant players.
The telecom is a mature industry, and there is a great need of technology and technical
proficiency. Mainly the computation between companies is through innovating the
product such as finding ways to replace traditional telecommunication and cable
television services.
The communication business is profitable and holds a monopoly position, and continued
strong growth is forecasted in the future.
Amtelecom communication is a leading provider of telecommunications, cable television,
and internet services in the Southwestern and Central Ontario.
Amtelecom communication has a dominant position and size in the industry, and it has
launched new services like calling features which are highly demanded by customers.
The growth in revenue for internet is forecasted at 5%, but the growth in the
telecommunication is predicted to be growing at 0.75% which seems very low compared
to the previous years.
Enterprise value of Amtelecom Communication using the DCF approach
The Total equity value for Amtelecom Communications using the DCF approach is
roughly $ 99 million, and
the net equity value is approximately $ 81 million.
Comparing Total enterprise value of $ 99 million using the DCF approach to the
result that we have got using EBITDA/ TEV multiple of $ 68 million it is a bit big
difference, but still it is reasonable and shows that the company is undervalued.
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