December 12, 2012 Project Canine Confidential Discussion Materials for the Special Committee of the Board of Directors of Collie - CONFIDENTIAL - Exhibit (c)(5) |
Disclaimer This presentation has been prepared by Centerview Partners LLC (“Centerview”) for use solely by the Special Committee of the Board of Directors (the “Committee”) of Collie (the “Company”) in connection with its evaluation of the proposed transaction and the Company’s strategic alternatives and for no other purpose. The information contained herein is based upon information supplied by the Company and publicly-available information, and portions of the information contained herein may be based upon statements, estimates and forecasts provided by the Company. We have relied upon the accuracy and completeness of the foregoing information, and have not assumed any responsibility for any independent verification of such information or for any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company or any other entity, or concerning solvency or fair value of the Company, its assets or any other entity. With respect to financial forecasts, including with respect to estimates of potential synergies, we have assumed that such forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company, and at your direction we have relied upon such forecasts, as provided by the Company’s management, with respect to the Company and Shepherd, including as to expected synergies. We assume no responsibility for and express no view as to such forecasts or the assumptions on which they are based. The information set forth herein is based upon economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof, unless indicated otherwise. The financial analysis in this presentation is complex and is not necessarily susceptible to a partial analysis or summary description. In performing this financial analysis, Centerview has considered the results of its analysis as a whole and did not necessarily attribute a particular weight to any particular portion of the analysis considered. Furthermore, selecting any portion of Centerview's analysis, without considering the analysis as a whole, would create an incomplete view of the process underlying its financial analysis. Centerview may have deemed various assumptions more or less probable than other assumptions, so the reference ranges resulting from any particular portion of the analysis described above should not be taken to be Centerview’s view of the actual value of the Company. These materials and the information contained herein are confidential, were not prepared with a view toward public disclosure, and may not be disclosed publicly or made available to third parties without the prior written consent of Centerview. These materials and any other advice, written or oral, rendered by Centerview is intended solely for the benefit and use of the Committee (in its capacity as such) in its consideration of the proposed transaction, and are not for the benefit of, and do not convey any rights or remedies for any holder of securities of the Company or any other person. Centerview will not be responsible for and has not provided any tax, accounting, actuarial, legal or other specialist advice. This presentation is not a fairness opinion, recommendation, valuation or opinion of any kind, and is necessarily incomplete and should be viewed solely in conjunction with the oral presentation provided by Centerview. 1 - CONFIDENTIAL - |
Table of Contents SECTION 1 ..................................................................................................................... Situation Update SECTION 2 ................................................................................................................... Valuation Analysis SECTION 3 ........................................................................................................... Review of Alternatives APPENDIX A ........................................................................................................... Supporting Materials 2 - CONFIDENTIAL - |
Situation Update Section 1 - CONFIDENTIAL - |
Collie has been engaged with Shepherd since early-October regarding a potential merger – Discussions appear to have been catalyzed by St. Bernard, which on October 15 announced its agreement to acquire 70% of Shepherd for more than $20 billion – On December 11, CNBC reported on the discussions • Collie stock closed up almost 12%; Shepherd closed down 1.6% – Shepherd is expected to file a 13D on December 13 Since our engagement by the Special Committee on November 21, Centerview has been actively involved in evaluating Shepherd’s proposal(s), including relative to other strategic and financial alternatives available Negotiations with Shepherd have focused on three inter-related topics: – Financial and contractual aspects of the transaction – Interim financing to be provided by Shepherd – Potential for Collie to accelerate previously-agreed network buildout schedule (and associated financing implications) (1) As discussed with both the Special Committee and full Board, we have focused on the ability of each of Collie’s potential alternatives to address key Collie issues: – Need for additional substantial wholesale customer(s) – Issues associated with Collie’s ownership / governance structure – Lack of liquidity to fund current business plan Situation Update (1) No longer an element of the transaction. To be discussed among principals post-announcement. 4 - CONFIDENTIAL - |
Overview of Shepherd Proposal Consideration Conditions to Sign - General [$2.90]/share in cash for 100% of equity interests it does not already own Approval of Collie and Shepherd Boards of Directors Approval of St. Bernard Structure Reverse triangular merger Conditions to Sign - SIGs Significant Conditions to Close Termination / Termination Payment(s) Board can change its recommendation consistent with fiduciary duties, but no fiduciary termination right If the merger agreement is terminated other than because [Collie shareholders do not approve merger], then Shepherd (i) is required to make a $100mm prepayment against accelerated network buildout (2) and (ii) will forgive $120mm of interim (see page 7) Note: Does not reflect Shepherd comments to merger agreement received early-morning 12/12/12. (1) Collie attempting to conform CFIUS standard to St. Bernard/Shepherd Agreement. (2) Prepayment payable in January 2014 assuming network milestones have been satisfied. $21mm basket for retention payments to non-management employees Other Key Terms – Merger Agreement | Final Terms Subject to Further Negotiation Collie shareholder vote Closing of Shepherd/St. Bernard transaction (including CFIUS approval) (1) No MAE on Collie [standard TBD] No Collie dissenting shares in excess of 12.5% Regulatory approval [standard TBD] and other standard closing conditions Voting agreements in favor of the transaction Equityholders’ Agreement is terminated at closing Agreement to offer to sell shares to Shepherd at deal price (pursuant to RoFO) [if Collie shareholders do not approve merger] 5 - CONFIDENTIAL - |
Overview of Shepherd Proposal Conditions to Sign - SIGs $2.60/share in cash Consideration Preliminary Proposal [$2.90]/share in cash Current Proposal MVNO RoFO 4G agreements terminated Agreements remain in place Triggered if merger agreement is terminated SIG offer + Shepherd commitment Triggered if [Collie shareholders do not approve merger] SIG offer only; no Shepherd commitment Conditions to Close Dissenting Shares Regulatory Percentage not specified Subsequent first proposal = 5% 12.5% No imposition of conditions unacceptable to Shepherd [Standard TBD] Termination Payment(s) Silent $100mm prepayment against accelerated network buildout (1) $120mm of interim financing is forgiven (see page 7) Note: Does not reflect Shepherd comments to merger agreement received early-morning 12/12/12. (1) Payable in January 2014 assuming network milestones have been satisfied, and if merger agreement is terminated other than because [Collie shareholders do not approve merger]. Key Terms – Changes vs. Preliminary Proposal | Final Terms Subject to Further Negotiation 6 - CONFIDENTIAL - |
Overview of Shepherd Proposal Availabilities Amount / Coupon / Other Conversion (1) Above $440mm, vote will be required to satisfy Nasdaq 20% rule; vote will be separately necessary given current Collie authorized shares limited to 360mm. Vote on share issuance and vote on merger will be cross-contingent. (2) Prepayment payable in January 2014 assuming network milestones have been satisfied. Key Terms – Interim Financing | Final Terms Subject to Further Negotiation Preliminary Proposal Current Proposal Up to $600mm 1.00% Senior Exchangeable Notes Due 2018 NCL Up to $800mm 1.00% Senior Exchangeable Notes Due 2018 NCL New RoFR on Excess Spectrum sale if merger does not close Up to $200mm subject to previously-agreed network milestones Remainder subject to new, mutually-agreed milestones $1.25/share $1.50/share (principal subject to adjustment – see below) Convertible at Collie’s option if merger agreement is terminated other than because [Collie shareholders do not approve merger] Otherwise always convertible at Shepherd’s option No new RoFR on Excess Spectrum sale $80mm per month, subject to caps at: – ~5.5 months (~$440mm) if shareholders have not approved issuance of additional shares (1) – 7 months ($560mm) if network milestones are not mutually-agreed within 45 days Forgiveness of Principal Shepherd will forgive $120mm of principal if merger agreement is terminated other than because [Collie shareholders do not approve merger] Matching Right 7 - CONFIDENTIAL - |
Summary of Shepherd Proposal Key Financial Statistics Source: Collie management, Company filings and FactSet, as of December 11, 2012. Note: U.S. dollars in millions, except per MHz-pop and per share amounts. Date ranges reflect calendar ranges (e.g., 30 days reflects 30 calendar days). (1) Based on 47.0bn MHz-pops. [ ] Preliminary Current Proposal Proposal $2.60 $2.90 $2.97 $3.00 $3.05 $3.10 $3.15 Increase vs. Preliminary Proposal – 11.5% 14.2% 15.4% 17.3% 19.2% 21.2% Incremental Value vs. Preliminary Proposal – $227 $280 $303 $340 $378 $416 Aggregate Value to Non-Shepherd Equityholders 1,965 2,192 2,245 2,268 2,305 2,343 2,381 Premia vs. Spot Prices Relative to Current - 12/11/12 ($2.68) (3.0%) 8.2% 10.8% 11.9% 13.8% 15.7% 17.5% Relative to Pre-Leak - 12/10/12 ($2.40) 8.3% 20.8% 23.8% 25.0% 27.1% 29.2% 31.3% 1-Day Prior to Receipt of Preliminary Proposal - 11/20/12 ($2.12) 22.6% 36.8% 40.1% 41.5% 43.9% 46.2% 48.6% 1-Day Prior to Annc. of Shepherd/St. Bernard Txn - 10/10/12 ($1.30) 100.0% 123.1% 128.5% 130.8% 134.6% 138.5% 142.3% Premia vs. Trading Averages 4-Weeks Prior to Pre-Leak ($2.27) 14.5% 27.7% 30.8% 32.1% 34.3% 36.5% 38.7% 6-Months Prior to Pre-Leak ($1.63) 59.9% 78.4% 82.7% 84.5% 87.6% 90.7% 93.8% 4-Weeks Prior to Receipt of Preliminary Proposal ($2.11) 23.2% 37.4% 40.7% 42.2% 44.5% 46.9% 49.3% 4-Weeks Prior to Annc. of Shepherd/St. Bernard Txn ($1.43) 81.5% 102.5% 107.4% 109.5% 113.0% 116.4% 119.9% EV / MHz-pop (1) $0.199 $0.208 $0.211 $0.212 $0.213 $0.215 $0.216 8 - CONFIDENTIAL - |
“Majority of Minority” Vote Analysis Source: Collie management and Company filings. Note: Shares in millions. Based on 1,466 million basic shares outstanding; excludes shares associated with RSUs. (1) Pro forma for Shepherd acquisition of shares from English Setter. (2) Includes Highbridge, Sirios, Chesapeake, Vanguard and Glenview. “Other Public” Shareholders Required to Approve Merger 9 - CONFIDENTIAL - Shares Total Class A and Class B Shares Outstanding 1,465.6 (Less): Shares Held By Shepherd (739.0) "Minority" Shares 726.6 Percentage of Minority Required to Approve Merger 50.1% Minority Shares Required to Approve Merger 364.0 % of Shares Non-Shepherd Comcast 88.5 12.2% Bright House 8.5 1.2% Intel 94.1 12.9% Subtotal SIGs 191.1 26.3% Mt. Kellet and Crest 99.0 13.6% Next Five (2) 179.1 24.7% Other Public 257.4 35.4% 100.0% SIGs SIGs and Next Five All SIGs All SIGs / 50% of All SIGs / 100% of "For" Next Five "For" Next Five "For" "For" 16.9% Not Needed Not Needed "Against" 39.6% 32.4% Not Needed Current Share Register (1) Total Non-Shepherd 726.6 |
Collie can issue 293mm shares prior to needing shareholder vote per Nasdaq rules Dilution Associated with Conversion of Interim Financing Source: Financial projections per Collie management and Company filings. Note: U.S. dollars in millions. (1) Based on 1,466 million basic shares outstanding, excluding shares associated with RSUs. (2) Based on projected September 2013 net debt balance per MCC. $1.50 / Share Conversion Price ~5.5-Month Cap 7-Month Cap Full Facility If agreement on buildout schedule not reached within 45 days, Collie can draw only for 7 months $800mm full availability Value (dilution) / accretion to Non-Shepherd / Non-SIG shareholders (2) 10 - CONFIDENTIAL - Unadjusted Less $120mm Unadjusted Less $120mm Unadjusted Less $120mm Principal $440 $320 $560 $440 $800 $680 Underlying Shares @ $1.50 293 213 373 293 533 453 Implied "Adjusted" Conversion Price $1.50 $2.06 $1.50 $1.91 $1.50 $1.76 Shepherd Pre-Conversion 50.4% 50.4% 50.4% 50.4% 50.4% 50.4% Pro Forma 58.7% 56.7% 60.5% 58.7% 63.7% 62.1% Non-SIG Shareholders Change (6.1%) (4.6%) (7.4%) (6.1%) (9.7%) (8.6%) Share Price Pre-Conversion (1) $0.08 $0.06 $0.10 $0.08 $0.13 $0.12 0.04 0.03 0.05 0.04 0.07 0.06 0.00 0.00 0.00 0.00 0.00 0.00 (0.08) (0.06) (0.10) (0.08) (0.13) (0.12) (0.17) (0.13) (0.20) (0.17) (0.27) (0.24) (0.25) (0.19) (0.30) (0.25) (0.40) (0.35) 3.00 Implied Conversion Price Change in Ownership (1) Change in Value Per Share $1.00 1.25 1.50 2.00 2.50 |
11 - CONFIDENTIAL - Summary of Indicative Dalmatian Proposal Spectrum Adjustments Proposal Comments ~40MHz contiguous spectrum in LTE Band 41 (the “Portfolio”) 11.367bn total MHz-pops – 9.528bn MHz-pops Owned – 1.839bn MHz-pops Leased ~$177mm (1) NPV of spectrum lease payments ~$200 - $600mm tax liability Gross Value $2.46bn ~$0.216/MHz-pop Net Value (2) ~$0.183/MHz-pop ~$1.7bn - $2.1bn in aggregate Tax liability dependent on Shepherd decision regarding use of NOLs (if available) vs. conversion to Class A shares Other Option to purchase additional 2MHz adjacent to Portfolio at same price Match right to purchase/lease additional 20Mhz of spectrum Agreement to “swap” spectrum at cost with replacement of “filter channels” if Dalmatian or Collie acquires spectrum contiguous to Portfolio Commercial agreement between Collie and Dalmatian Liquidity Impact Source: Collie management. (1) Collie management estimate based on 10% discount rate; Dalmatian proposal estimates NPV of spectrum lease payments as $277 million based on 5% discount rate. (2) Reflects $177mm NPV of spectrum lease payments and assumes $200mn tax liability. Collie agreements restrict use of proceeds from asset sale – Baskets allow for funding of (i) up to one year of capex and (ii) operating expenses up to 25% of proceeds (less amounts used to fund capex) – Remainder must be used to tender for first lien If holders do not tender, Collie’s use of proceeds is not restricted – Current trading levels suggest debtholders may not tender Additional 20MHz likely exceeds current Excess Spectrum definition Commercial agreement is defined only in broad terms Dalmatian has on prior occasion expressed willingness to consider using acquired Collie debt as partial consideration |
- CONFIDENTIAL - Valuation Analysis Section 2 |
13 - CONFIDENTIAL - Overview of Valuation Methodologies Employed Comments Observations Historical Trading Ranges Reflects Collie trading levels both before and since the announcement of the Shepherd/St. Bernard transaction $0.90 - $2.69 52-week range (based on closing prices) Closed 12/11/12 at $2.68 Precedent Transactions All cash transactions Minority squeeze-outs Each transaction is situation-specific Median of both cash transactions overall and minority squeeze-outs is in the ~30% range See pages 18-19 Analyst Price Targets Wide range of expectations and assumptions Generally based on per-MHz-pop valuations and DCF $2.00 - $4.00 range (excluding high/low) See page 16 Precedent Spectrum Acquisitions Recent strategic acquisitions of material spectrum blocks – Based on transactions involving MSS, WCS and 2.5GHz spectrum bands Each transaction is situation-specific with valuations affected by a number of factors Most-similar spectrum has traded in the $0.18 - $0.26 (1) / MHz-pop range See page 17 Discounted Cash Flow Analysis Illustrative intrinsic value based on projected future FCF Based on two Management cases, one which assumes additional wholesale customer(s) and another which assumes Shepherd remains the only customer DCF less significant to overall analysis given (i) Management’s view of continuing challenge in attracting additional wholesale customer(s) and (ii) requirement of significant additional funding, which may not be available See page 20-22 (1) Price/MHz-pop for AT&T acquisition of Nextwave spectrum includes C/D blocks not immediately usable due to requirement for “guard bands.” Excluding guard bands yields implied price of $0.37/MHz-pop. Centerview’s valuation analysis includes a number of different valuation methodologies, each with its own particular considerations: Trading Comparables We have considered and reviewed potential trading comparables, but not included in our analysis due to lack of meaningful comparability to Collie |
$15.50 $0.00 $2.90 $3.15 Valuation Summary $2.80 $2.75 Historical Trading Ranges 52-Week Closing Low - 7/24/12 52-Week Closing High - 10/15/12 Analyst Price Targets (1) Precedent Spectrum Acquisitions (2) $0.176 - $0.255 / MHz-POP Precedent Cash Transactions ~32% Premium to 1-Day Pre-Shepherd / St. Bernard ($1.30) ~32% Premium to 1-Day Prior to Preliminary Offer ($2.12) ~38% Premium to 12/10/12 Close ($2.40) Precedent Minority Squeeze-Outs ~30% Premium to 1-Day Pre-Shepherd / St. Bernard ($1.30) ~30% Premium to 1-Day Prior to Preliminary Offer ($2.12) ~30% Premium to 12/10/12 Close ($2.40) DCF - Multi-Customer Case (3) 10.0% - 17.5% WACC 1.0% - 3.0% Perpetuity Growth Rate DCF - Single-Customer Case (3) 10.0% - 17.5% WACC 1.0% - 3.0% Perpetuity Growth Rate $3.45 $1.70 $1.70 $1.90 $2.00 $0.90 $0.75 $3.10 $3.30 $4.35 $4.00 $2.69 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 14 - CONFIDENTIAL - (4) Note: Figures rounded to nearest $0.05, except historical trading ranges. (1) Excludes high and low price targets. (2) Based on transactions involving MSS, WCS and 2.5GHz spectrum bands. Price/MHz-pop for AT&T acquisition of Nextwave spectrum includes C/D blocks not immediately usable due to requirement for “guard bands.” Excluding guard bands yields implied price of $0.37/MHz-pop. (3) Does not reflect proceeds from divestiture of excess spectrum; indicative Dalmatian proposal implies additional value of ~$1.40 per share. (4) Negative equity values expressed as $0.00. |
Analysis at Various Prices Source: Collie management, Company filings and FactSet, as of December 11, 2012. Note: U.S. dollars in millions, except per MHz-pop and per share amounts. Date ranges reflect calendar ranges (e.g., 30 days reflects 30 calendar days). (1) Based on fully diluted shares outstanding, including shares associated with RSUs, options and warrants. (2) Collie management estimate. (3) Based on 47.0bn MHz-pops. vs. Pre-Leak (12/10/12) Through Pre-Leak (12/10/12) Through Pre-Shepherd/ St. Bernard (10/10/12) [ ] Preliminary Current Proposal Proposal $2.60 $2.90 $2.97 $3.00 $3.05 $3.10 $3.15 Aggregate Equity Value (1) $3,887 $4,335 $4,440 $4,485 $4,560 $4,635 $4,710 Plus: Debt 4,486 4,486 4,486 4,486 4,486 4,486 4,486 Plus: NPV of Spectrum Leases (2) 1,800 1,800 1,800 1,800 1,800 1,800 1,800 (Less): Cash & S-T Investments (828) (828) (828) (828) (828) (828) (828) Aggregate Enterprise Value $9,344 $9,793 $9,897 $9,942 $10,017 $10,092 $10,167 Transaction Highlights Increase vs. Preliminary Proposal - 11.5% 14.2% 15.4% 17.3% 19.2% 21.2% Incremental Value vs. Preliminary Proposal - 227 280 303 340 378 416 Value of Non-Shepherd Equity 1,965 2,192 2,245 2,268 2,305 2,343 2,381 Premia Spot Prices Relative to: 52-Wk. High ($2.69) (3.3%) 7.8% 10.4% 11.5% 13.4% 15.2% 17.1% Current ($2.68) (3.0%) 8.2% 10.8% 11.9% 13.8% 15.7% 17.5% Pre-Leak ($2.40) 8.3% 20.8% 23.8% 25.0% 27.1% 29.2% 31.3% 1-Day Prior to Preliminary Proposal ($2.12) 22.6% 36.8% 40.1% 41.5% 43.9% 46.2% 48.6% 1-Day Prior to Annc. of Shepherd/St. Bernard ($1.30) 100.0% 123.1% 128.5% 130.8% 134.6% 138.5% 142.3% 1-Week Prior ($2.47) 5.3% 17.4% 20.2% 21.5% 23.5% 25.5% 27.5% 4-Weeks Prior ($2.22) 17.1% 30.6% 33.8% 35.1% 37.4% 39.6% 41.9% 6-Mos. Prior ($1.19) 118.5% 143.7% 149.6% 152.1% 156.3% 160.5% 164.7% Trading Averages: 4-Weeks ($2.27) 14.5% 27.7% 30.8% 32.1% 34.3% 36.5% 38.7% 3-Mos. ($1.93) 34.9% 50.5% 54.1% 55.7% 58.3% 60.9% 63.5% 6-Mos. ($1.63) 59.9% 78.4% 82.7% 84.5% 87.6% 90.7% 93.8% 4-Weeks Prior to Preliminary Proposal ($2.11) 23.2% 37.4% 40.7% 42.2% 44.5% 46.9% 49.3% 4-Weeks ($1.43) 81.5% 102.5% 107.4% 109.5% 113.0% 116.4% 119.9% 3-Mos. ($1.43) 81.3% 102.3% 107.2% 109.2% 112.7% 116.2% 119.7% 6-Mos. ($1.38) 88.6% 110.3% 115.4% 117.6% 121.2% 124.8% 128.5% EV / MHz-pop (3) $0.199 $0.208 $0.211 $0.212 $0.213 $0.215 $0.216 15 - CONFIDENTIAL - |
16 Source: Wall Street research and FactSet, as of December 11, 2012. Excludes analysts for whom price target is not available. (1) Reflects standardized text, as per ThomsonOne. (2) Reflects near-term price target, as per analyst research. Analyst Price Targets - CONFIDENTIAL - Price Report Valuation Analyst Rating (1) Target (2) Date Methodology Zachary Buy $5.00 Oct-12 not provided BofA Merrill Lynch Buy 4.00 Oct-12 $0.15-$0.30 / MHz-pop JPMorgan Hold 4.00 Dec-12 $0.28 / MHz-pop Wells Fargo Buy 3.75 Jul-12 $0.17-$0.19 / MHz-pop Davidson Buy 3.00 Oct-12 not provided Guggenheim Buy 3.00 Oct-12 not provided JANCO Buy 2.75 Aug-12 not provided Macquarie Hold 2.75 Nov-12 DCF "Scenario Analysis" RBC Hold 2.50 Nov-12 $0.25 / MHz-pop Jefferies Hold 2.00 Oct-12 DCF / Spectrum-based Evercore Hold 1.75 Oct-12 Spectrum-based UBS Hold 1.75 Oct-12 DCF-based |
Precedent Spectrum Acquisitions (3) (4) (2) (5) (5) (1) (6) Precedent spectrum valuations are influenced by a number of factors including: situational context (e.g., distressed sale), immediately deployable vs. requiring regulatory approval, strategic value to acquirer, portfolio size, geographic coverage, useable spectrum as a percentage of total portfolio, etc. - CONFIDENTIAL - 17 Date Txn Total Acquiror Target $ / MHz-pop Annc. Value MHz-pop Comment Collie Shepherd Spectrum 5/7/08 $7,400 28,989 Reflects price for spectrum contributed by Shepherd for stake in Collie Dalmatian Collie NA 2,460 11,367 Preliminary Dalmatian proposal to Collie Shepherd English Setter 10/18/12 9,893 47,000 Based on $2.97/share Collie BellSouth 2/15/07 300 1,700 Regulatory divestiture in connection with AT&T/BellSouth AT&T NextWave 8/2/12 600 2,846 Price includes guard bands; ex. yields $0.37 / MHz-pop Subject to FCC approval of AT&T / Sirius plan Harbinger (LightSquared) SkyTerra 9/23/09 1,849 7,500 Regulatory requirement for significant build-out Dalmatian DBSD 2/1/11 1,364 6,000 Transactions included satellites Required $114mm payment to Shepherd Dalmatian Terrestar 6/14/11 1,382 6,600 FCC approval required prior to terrestrial use Distressed sale Verizon SpectrumCo 12/2/11 3,600 5,180 Contiguous with holdings / able to immediately deploy Part of larger agreement with Cable Companies Verizon Cox 12/16/11 315 560 Contiguous with holdings / able to immediately deploy Complementary to SpectrumCo Acquisition Various Nextwave Spectrum 7/17/08 150 593 $0.253 $0.563 $0.695 $0.209 $0.227 $0.247 $0.211 $0.176 $0.210 $0.216 $0.255 Source: Company filings, FCC reports and Wall Street research. Note: Figures in millions, except $ / MHz-pop. (1) Reflects total transaction size at headline “target” price of $20 / share (price after post-closing adjustments to be within $17-$23 range). (2) Reflects Shepherd spectrum to be contributed, as of 4/30/08. Merger agreement specifies a minimum of 27,540 MHz-pop at closing. (3) Transaction was primarily WCS but also included AWS spectrum. (4) Includes C/D blocks not immediately usable due to requirement for “guard bands.” 1,607 MHz-pop excluding C/D blocks. (5) Final closing prices as per Q1’12 10-Q. (6) Divestiture included both 10 and 20 MHz blocks; assumes average of 15 MHz, as per Wall Street research. |
- CONFIDENTIAL - Precedent Premiums Paid in Recent Cash Transactions Source: Thomson SDC. (1) Includes 108 cash-only transactions announced since January 1, 2009 with non-financial, non-real estate public U.S. targets. 25 Percentile Median Mean 75 Percentile Current Shepherd Proposal Selected Cash Transactions with Equity Values between $1.0-$5.0 billion Pre-Leak Prior to St. Bernard-Shepherd Announcement Prior to Initial Proposal 18 20% 26% 32% 35% 37% 38% 39% 46% 45% 44% 52% 21% 17% 31% 37% 35% 55% 123% 118% 80% 23% 1-Day 1-Wk 4-Wks 1-Day 1-Day 1-Day 1-Day 1-Day 1-Day 1-Wk 1-Wk 1-Wk 1-Wk 1-Wk 1-Wk 4-Wks 4-Wks 4-Wks 4-Wks 4-Wks 4-Wks (1) th th |
Precedent Minority Squeeze-Out Transactions Selected Cash Transactions Greater than $1.0 billion Source: Company filings, Thomson SDC, Bloomberg and Capital IQ. Note: Date ranges reflect calendar ranges (e.g., 30 days reflects 30 calendar days). (1) Reflects value of equity acquired. U.S. dollars in billions. (2) Premium to target’s stock price 1-day prior to preliminary announcement. (3) Initial to final. All Transactions Transactions with Price Increases Preliminary Offer Final Offer Date Ownership Txn Premium Price Annc. Closed Target Acquiror % Prior % Acq. % PF Value (1) Price Prem. (2) Price 1-Day 1-Week 4-Week Increase (3) 6/2/10 8/30/10 Gerdau Ameristeel Gerdau Steel N. America 66.3% 33.7% 100.0% $1.6 $11.00 53.4% $11.00 53.4% 57.1% 56.9% - 9/4/09 10/28/09 Odyssey Re Holdings Fairfax Financial Holdings 72.6% 27.4% 100.0% 1.0 60.00 20.0% 65.00 30.0% 29.9% 39.9% 8.3% 8/12/08 11/5/08 UnionBanCal Bank of Tokyo- MUFJ 65.4% 34.6% 100.0% 3.7 63.00 9.1% 73.50 27.2% 29.5% 104.4% 16.7% 7/21/08 3/26/09 Genentech Roche Holdings AG 55.7% 44.3% 100.0% 46.8 89.00 8.8% 95.00 16.1% 26.0% 28.1% 6.7% 3/10/08 1/2/09 Nationwide Financial Nationwide Mutual Insurance 66.3% 33.7% 100.0% 2.5 47.20 26.7% 52.25 40.2% 31.0% 31.0% 10.7% 11/20/06 4/20/07 TD Banknorth TD Bank Financial Group 57.0% 43.0% 100.0% 3.2 32.33 7.3% 32.33 7.3% 9.1% 8.6% - 2/6/06 5/16/06 Lafarge North America Lafarge S.A. 53.2% 46.8% 100.0% 2.9 75.00 17.4% 85.50 33.8% 34.4% 40.5% 14.0% 9/1/05 11/8/05 7-Eleven Seven & I Holdings 72.7% 27.3% 100.0% 1.3 32.50 14.7% 37.50 32.3% 31.0% 14.1% 15.4% 8/2/04 12/8/04 Cox Communications Cox Enterprises 62.2% 37.8% 100.0% 8.5 32.00 16.0% 34.75 26.0% 24.6% 25.2% 8.6% Min 7.3% 7.3% 9.1% 8.6% - Mean 19.3% 29.6% 30.3% 38.8% 8.9% Median 16.0% 30.0% 29.9% 31.0% 8.6% Max 53.4% 53.4% 57.1% 104.4% 16.7% Mean 11.5% Median 10.7% 19 - CONFIDENTIAL - |
Management has provided Centerview with two sets of financial projections, differing primarily with respect to the Company’s assumed wholesale customer base: – Multi-Customer Case (“MCC”) assumes substantial non-Shepherd LTE network traffic beginning in 2014 (~70% of total revenue by 2015) – Single-Customer Case (“SCC”) assumes Shepherd remains Collie’s only wholesale customer Both cases assume ongoing LTE upgrades and retail strategy consistent with announced plans We have also reviewed a “Modified SCC,” prepared by Collie management, which reflects a slightly-faster network buildout; results are immaterially different from SCC In evaluating the feasibility and value of these plans, we note the following: – Despite a concerted effort over the past several years, Collie has yet to attract another meaningful wholesale customer other than Shepherd • Given an estimated nine-month lead time to put traffic on-net, the MCC implies one or more very significant new-customer win(s) in the immediate future – Both the MCC and the SCC contemplate substantial funding gaps (~$2bn and ~$4bn, respectively) to reach free cash flow positive • Potential sources of funds include capital markets solutions and/or spectrum sales, but uncertainty around the timing and amount of available funding impacts the feasibility of these plans Management Plan Overview Centerview Observations Source: Collie management. (1) Analysis does not reflect proceeds from divestiture of excess spectrum; indicative Dalmatian proposal implies additional value of ~$1.40 per share. 20 - CONFIDENTIAL - (1) |
21 - CONFIDENTIAL - 12 -'20 2011A 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E CAGR MCC Revenue $1,253 $1,262 $1,207 $1,082 $2,351 $3,905 $5,098 $6,145 $7,141 $7,447 24.8% Adjusted EBITDA (1) ($305) ($168) ($280) ($482) $748 $2,275 $3,696 $4,871 $5,763 $5,940 NM % Margin -24.3% -13.3% -23.2% -44.5% 31.8% 58.3% 72.5% 79.3% 80.7% 79.8% Capital Expenditures (220) (157) (327) (294) (235) (390) (510) (614) (714) (745) 21.5% Interest Expense (477) (514) (512) (511) (511) (510) (510) (510) (510) (510) -0.1% Free Cash Flow (1,368) (624) (1,113) (1,269) (389) 1,200 2,524 2,184 2,600 2,768 NM Cash Balance / (Deficit) $1,108 $828 ($350) ($1,654) ($2,075) ($898) $1,596 $3,743 $6,306 $9,036 SCC Revenue $1,253 $1,262 $1,191 $839 $1,211 $1,714 $2,101 $2,434 $2,749 $2,904 11.0% Adjusted EBITDA (1) ($305) ($168) ($267) ($717) ($387) $106 $745 $1,287 $1,554 $1,640 NM % Margin -24.3% -13.3% -22.4% -85.4% -32.0% 6.2% 35.5% 52.9% 56.5% 56.5% Capital Expenditures (220) (157) (293) (317) (154) (171) (238) (243) (279) (298) 8.4% Interest Expense (477) (514) (512) (511) (511) (510) (510) (510) (510) (510) -0.1% Free Cash Flow (1,368) (624) (1,065) (1,545) (1,267) (641) (57) 487 725 812 NM Cash Balance / (Deficit) $1,108 $828 ($301) ($1,882) ($3,181) ($3,845) ($3,932) ($3,481) ($2,794) ($2,021) Management Plan Overview Source: Financial projections per Collie management. Note: U.S. dollars in millions. (1) Adjusted EBITDA excludes non-cash charges per Collie management calculation. Financial Summary Indicates Maximum Funding Gap |
Illustrative DCF Value Source: Financial projections per Collie management. Note: Includes present value of NOLs per management. Plan requires ~$4.0 billion additional funding to achieve forecast Plan requires ~$2.0 billion additional funding to achieve forecast 22 - CONFIDENTIAL - Perpetuity Growth Rate 4.8x 1% 2% 3% 10.0% 5.7x 6.5x 7.5x 12.5% 4.5 5.0 5.5 15.0% 3.7 4.0 4.4 17.5% 3.1 3.4 3.6 Perpetuity Growth Rate 4.5x 1% 2% 3% 10.0% 5.4x 6.1x 7.0x 12.5% 4.2 4.7 5.2 15.0% 3.5 3.8 4.1 17.5% 2.9 3.2 3.4 Perpetuity Growth Rate e $6.7 1% 2% 3% 10.0% $12.19 $13.64 $15.49 12.5% 7.91 8.65 9.54 15.0% 5.25 5.67 6.15 17.5% 3.45 3.71 4.00 Perpetuity Growth Rate e ($1.4) 1% 2% 3% 10.0% ($0.09) $0.28 $0.76 12.5% (1.16) (0.97) (0.74) 15.0% (1.81) (1.70) (1.58) 17.5% (2.23) (2.16) (2.09) MCC – Equity Value / Share SCC – Equity Value / Share MCC – Implied Terminal Value Multiple SCC – Implied Terminal Value Multiple |
- CONFIDENTIAL - Review of Alternatives Section 3 - CONFIDENTIAL - |
Overview of Alternatives Considered Realizable value Shepherd assumes obligations Upon completion, eliminates key risks Interim funding Conditionality Impact if transaction does not close SIGs’ support Net proceeds help address funding gap and provide time Likely permits refinancing at improved terms Dalmatian's intended use of spectrum is unclear Shepherd’s reaction/response Addresses capital structure issues Potential ability to address key governance issues, uneconomic leases, etc. Highly-uncertain outcome Equity recovery uncertain Sale or liquidation of spectrum may be required Shepherd and Dalmatian have ability to influence process outcome SIGs’ reaction/response (however, provides addt’l time) Covered in Section 1 24 - CONFIDENTIAL - Benefits Considerations Wholesale Customers Governance / Ownership Liquidity Solution to Key Collie Issues? I. Sale to Shepherd II. Sale of Spectrum to Dalmatian III. Chapter I I Restructuring |
Financing Considerations Source: Collie management and SEC filings. (1) Assumes refinancing of Senior Secured Notes at 8.5% annual interest rate. (2) Discount relative to unaffected price of $2.40. Lenders have indicated potential ability to refinance a portion of $3.2bn Senior Secured Notes Issuance upsized to include 6% call premium 8.00% - 9.00% coupon on new debt versus 12.00%- 14.75% current coupon Potential annual interest savings of $22 million for each $1 billion refinanced No upfront cash to Collie’s balance sheet; interest savings would not satisfy funding gap Investors will demand call protection on new debt, limiting Shepherd’s ability to refinance post-merger Market perception of likelihood of strategic transaction may impact pricing / terms Most-aggressive proposal indicated ability to refinance $500mm Second Priority Notes Market appetite for new issue likely limited and expensive No upfront cash to Collie’s balance sheet; interest savings would not satisfy funding gap Coupon not specified Mt. Kellett provided term sheet in Spring 2012 for structured equity investment; however, proposal was not fully committed Execution may be challenged by uncertainty around committed equity offering Company only has 360mm available authorized shares (increase would require shareholder vote) Shepherd pre-emptive rights Likelihood of significant dilution 25 Senior Debt Junior Debt Equity Comments Illustrative Impact Analysis - CONFIDENTIAL - (1) |
Chapter 11 Considerations Description Pre-Arranged Chapter 11 Filing Non Pre-Arranged Chapter 11 Filing Restructuring plan agreed with key creditors prior to filing Court process used to confirm plan Company files without a pre-negotiated exit plan Benefits Court process provides protection to Company and stakeholders Enhances negotiating leverage with key constituencies Reduces uncertainty and time to resolution Addresses liquidity needs Minimizes liquidation risk Available option if pre-arranged filing is not possible (e.g., unable to build consensus, liquidity deteriorates, etc.) Shepherd Considerations Will be a key party—at least initially—to any negotiations May pursue spectrum acquisition Potential for cooperation with Dalmatian Will seek to protect existing MVNO agreements Potential stalking horse in asset sale(s) May require Debtor in Possession financing to fund liquidity needs during case We understand that the Company is in the process of exploring—as a fall-back—various restructuring alternatives Dalmatian Considerations Capital structure positions makes Dalmatian a key constituency Will be focused on acquiring spectrum Could offer to swap debt for equity and/or new financing Concerned about cram-up Potential for cooperation with Shepherd Same as at left 26 - CONFIDENTIAL - |
- CONFIDENTIAL - Supporting Materials Appendix A - CONFIDENTIAL - |
28 - CONFIDENTIAL - Illustrative WACC Analysis Source: Bloomberg, Ibbotson and Advantage Data. (1) Based on yield-to-worst of currently outstanding traded notes. Illustrative WACC Over Time Max Debt Yields Prior to S-P Annc. Current (10/11/11) (10/10/12) (12/10/12) Cost of Equity 14.3% 14.5% 12.9% Cost of Debt – At Par Wtd Avg. Cost of Debt (Incl. Leases) – At Pa 11.1% 11.1% 11.1% (Less): Taxes @ 38% (4.2%) (4.2%) (4.2%) After-Tax Cost of Debt – At Par 6.9% 6.9% 6.9% WACC – At Par 9.1% 9.2% 9.6% Cost of Debt – Based on Traded Notes Yield-to-Worst Weighted Avg. Yield-to-Worst (1) 27.4% 12.5% 9.2% (Less): Taxes @ 38% (10.4%) (4.8%) (3.5%) After-Tax Cost of Debt – At Yield-to-Worst 17.0% 7.8% 5.7% WACC – At Yield-to-Worst 16.2% 9.8% 8.9% |
29 - CONFIDENTIAL - Does not reflect impact of synergies – Collie management has presented to Shepherd potential to realize up to $1.2bn in annual operating savings, and more than $1.6bn in aggregate near-term CapEx savings Illustrative Consolidation Math Standalone Pro Forma (A) + (B) (A) (B) Shepherd w/ Additional Shepherd (1) Collie (2) $4.9bn from St. Bernard (3) (A) + (B) Current 9/2012PF Capital Structure Gross Debt $24.5 $4.5 $25.8 $28.9 (Less): Cash (8.8) (1.2) (12.7) (7.8) Net Debt 15.6 3.3 13.2 21.2 Illustrative 6/2013 Capital Structure Gross Debt 24.4 4.4 25.8 28.9 (Less): Cash (6.3) (0.2) (9.1) (4.2) Net Debt 18.1 4.2 16.6 24.6 Illustrative Leverage Statistics Gross Debt / LTM EBITDA 5.1x nm 5.5x 6.2x Net Debt / LTM EBITDA 3.3 nm 2.8 4.5 LTM (9/2012) EBITDA $4.8 ($0.1) $4.7 $4.7 Gross Debt / Proj. LTM EBITDA 4.8x nm 5.3x 5.9x Net Debt / Proj. LTM EBITDA 3.5 nm 3.4 5.0 Proj. LTM EBITDA $5.1 ($0.2) $4.9 $4.9 9/12PF 6/13E Source: Collie management, Company filings and Wall Street research. Note: For illustrative purposes assumes Collie acquisition at $3.00 / share. (1) Current capital structure is pro forma for $3.1bn convertible note issuance, purchase of English Setter stake in Collie, purchase of U.S. Cellular spectrum and consent solicitation fee. 6/2013 capital structure reflects Wall Street estimates. (2) Debt excludes spectrum leases for purposes of leverage analysis. (3) Pro forma for conversion of $3.1bn convertible note to equity. |
30 - CONFIDENTIAL - Multiple Carrier Case Single Carrier Case Gross Proceeds to Collie $2,460 $2,460 Less: NPV of Spectrum Leases (177) (177) Less: Cash Taxes (200) (200) Less: 2013E CapEx Spend (a) (327) (293) Less: 25% of Proceeds after CapEx Reserve (b) (439) (447) Proceeds to be Used to Tender for Debt $1,317 $1,342 2013E 2014E 2015E 2016E 2017E 2013E 2014E 2015E 2016E 2017E Memo: Status Quo Cash Balance ($350) ($1,654) ($2,075) ($898) $1,596 ($301) ($1,882) ($3,181) ($3,845) ($3,932) Status Quo Period Cash Flow ($1,178) ($1,305) ($420) $1,176 $2,494 ($1,130) ($1,581) ($1,298) ($665) ($87) Net Proceeds from Spectrum Sale (after Tender) 1,317 - - - - 1,342 - - - - Proceeds Reserved for CapEx / General (a+b) 766 - - - - 741 - - - - Annual Interest Savings (1) - - - - - - - - - - Pro Forma Ending Cash Balance $1,733 $429 $8 $1,185 $3,679 $1,782 $201 ($1,098) ($1,762) ($1,849) Status Quo Period Cash Flow ($1,178) ($1,305) ($420) $1,176 $2,494 ($1,130) ($1,581) ($1,298) ($665) ($87) Net Proceeds from Spectrum Sale (after Tender) - - - - - - - - - - Proceeds Reserved for CapEx / General (a+b) 766 - - - - 741 - - - - Annual Interest Savings (1) 161 161 161 161 161 165 165 165 165 165 Pro Forma Ending Cash Balance $578 ($566) ($824) $513 $3,169 $604 ($813) ($1,946) ($2,447) ($2,369) Assuming No Holders Tender Assuming 100% of Holders Tender Illustrative Cash Flow Impact of Potential Dalmatian Transaction Source: Financial projections per Collie management. Note: U.S. dollars in millions. (1) Based on weighted average interest rate of 12.25% on Senior Secured Notes. Refinancing of Senior Secured Notes could help address funding gap |