1
PROJECT STAR TREK
PRESENTATION TO THE INDEPENDENT COMMITTEE OF THE
BOARD OF DIRECTORS OF INTEK GLOBAL CORPORATION
JUNE 7, 1999
2
1
TABLE OF CONTENTS
SECTION
- --------------------------------------------------------------------------------
1 Introduction
2 Stock Price Performance
3 Financial Analyses
APPENDICES
A List of Target Markets for the RoameR One Roll-Out
B Comparable Company and Comparable Transaction Analyses
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3
1
SECTION 1
INTRODUCTION
4
1 PROJECT STAR TREK
BEAR STEARNS' ENGAGEMENT
- - Bear Stearns has been engaged by the Independent Committee of the Board of
Directors of Intek Global Corporation ("Intek" or the "Company") to render
an opinion (the "Opinion") as to the fairness, from a financial point of
view to the public shareholders of Intek, of the offer by Securicor
Communications Ltd. ("Securicor") to purchase all of the outstanding common
stock of Intek it does not already own
- - The following activities have been performed by Bear Stearns to date:
- Performed business and financial due diligence through review of public
documents (including 10-Ks, 10-Qs and proxies, among others)
- Reviewed the Company's historical results of operations, including, on
a regular basis, year-to-date financial results with management
- Visited the Company's facilities and held extensive discussions with
senior management and staff regarding Intek's operations, historical
financial results and future prospects
- Assisted Intek management in refining its business plan
- Presented our preliminary analyses to the Board of Directors on
February 25, 1999
- Presented our preliminary financial review of the Company to the
Independent Committee on several occasions and reviewed informal
discussions held with Lazard Freres, Securicor's financial advisor
- Reviewed the historical prices and trading volume of the common shares
of Intek
- Performed various financial and valuation analyses based on financial
projections and operating assumptions provided by the Company's
management
- Developed detailed discounted cash flow financial analyses
incorporating management's financial projections and operating
assumptions
- Conducted other studies, analyses and inquiries as we deemed
appropriate
CONFIDENTIAL 1
5
1 PROJECT STAR TREK
KEY TERMS OF THE PROPOSED TRANSACTION
- -------------------------------------------------------------------------------------------------------------------------
PROPOSED TRANSACTION Purchase of all Intek common shares not already owned by Securicor
OFFER PRICE $2.75 per share of Intek common stock in cash
IMPLIED ENTERPRISE VALUE Approximately $226 million
TERMS OF AGREEMENT - Cash tender offer to commence as soon as
practicable, but in no event later than five business days
following the execution of the merger agreement
- Tender offer is subject to a minimum
condition of receiving a majority of the
shares not held by Securicor
- If the conditions of the tender offer are
satisfied, but the tender offer does not
result in Securicor owning 90% or more of
Intek's common shares, the merger will be
approved by majority written consent of
the shareholders
- If the ownership reaches the 90% level,
Securicor will execute a "certificate of
ownership and merger" to effect the
merger
TIMING The tender offer will expire 20 business days after it commences, subject to extension
STOCK PRICE PREMIUM - 113% premium to average stock price of $1.29 for the 30-day period prior to the
filing of the amendment to Securicor's Schedule 13-D on January 19, 1999
- 25.7% premium to the closing price of $2.19 on June 4, 1999
- --------------------------------------------------------------------------------------------------------------------------
CONFIDENTIAL 2
6
BEAR
STEARNS
SECTION 2
STOCK PRICE PERFORMANCE
7
BEAR
STEARNS PROJECT STAR TREK
INTEK PRICE / VOLUME GRAPH - LATEST TWELVE MONTHS
DAILY: JUNE 5, 1998 TO JUNE 4, 1999
- --------------------------------------------------------------------------------
[GRAPH]
Annotation Date Open Close Volume
A 07/29/98 $3.75 $3.63 15,100
B 08/14/98 3.00 2.94 4,800
C 08/24/98 2.50 2.50 21,900
D 10/23/98 1.09 1.38 138,000
E 12/24/98 1.69 1.69 25,200
F 01/19/99 1.44 1.41 121,500
G 02/03/99 1.72 1.94 416,800
H 02/12/99 2.00 2.06 47,100
I 02/16/99 2.06 2.03 4,900
J 02/22/99 2.00 2.13 21,300
K 03/11/99 2.13 2.06 22,700
L 04/20/99 1.75 1.63 25,500
M 05/17/99 2.44 2.44 10,200
Average Closing Stock Price $2.07
Median Closing Stock Price $1.88
Average Daily Volume 43,767
A 07/29/98 - FCC approves Global's Linear Modulation technology for entry
into emerging $25 billion VHF refarming market
B 08/14/98 - Intek Global releases results for the fiscal third quarter of
1998; reports revenues of $9.2 million and a net loss of ($9.3)
million
C 08/24/98 - Intek Global announces its intention to sell certain assets
of its Radiocoms subsidiary for $8 million in cash
D 10/23/98 - Intek Global is awarded 181 licenses in Phase II of the FCC's
220 MHz auction
E 12/24/98 - Intek Global releases fiscal 1998 results; reports revenues
of $35.7 million and a net loss of ($66.3) million
F 01/19/99 - Securicor files amendment to Schedule 13-D stating it is
considering various alternatives relating to its equity and
debt interests in Intek
G 02/03/99 - Independent Committee of Intek Global announces retention of
Bear Stearns as investment banker
H 02/12/99 - Intek Global releases results for the fiscal first quarter,
reports revenues of $5.9 million and a net loss of ($7.4)
million
I 02/16/99 - Intek signs a multi-year product development and
manufacturing agreement with Taiwan-based ADI Communications
J 02/22/99 - Intek Global ships initial $5 million of equipment to NRTC
K 03/11/99 - Announces agreement with Spain's Teltronic S.A. to develop a
UHF digital transmitter
L 04/20/99 - Securicor communicates an informal indication of interest to
the Independent Committee to purchase all of the outstanding
common stock of Intek it does not already own at $2.75 per
share
M 05/17/99 - Intek Global releases results for the second fiscal quarter
of 1999; reports revenues of $6.7 million and a net loss of
($8.9) million
- --------------------------------------------------------------------------------
- ---------------------
Source: FactSet Research.
CONFIDENTIAL 3
8
BEAR
STEARNS PROJECT STAR TREK
INTEK TRADING VOLUME - LATEST TWELVE MONTHS
JUNE 5, 1998 TO JUNE 4, 1999
- --------------------------------------------------------------------------------
% of Total Intek 31.5% 33.2% 15.1% 6.6% 10.1% 3.5%
Trading Volume
Intek Stock Price $1.00-$1.50 $1.50-$2.00 $2.00-$2.50 $2.50-$3.00 $3.00-$3.50 $3.50-$4.00
Range
CUMULATIVE VOLUME 3,106,400 3,280,800 1,486,200 654,400 995,300 347,700
- -----------------------------------------------------------------------------------------------------------------
- ---------------------
Source: FactSet Research.
CONFIDENTIAL 4
9
BEAR
STEARNS PROJECT STAR TREK
INTEK COMPARATIVE STOCK PRICE PERFORMANCE - LATEST TWELVE MONTHS
INTEK VERSUS THE RUSSELL 2000 INDEX
DAILY: JUNE 5, 1998 TO JUNE 4, 1999
- ------------------------------------------------------------------------------
Date Intek Russell 2000
- ------------------------------------------------------------------------------
6/5/98 100% 100%
7/6/98 91 101
8/5/98 89 88
9/4/98 43 76
10/5/98 45 74
11/5/98 53 87
12/4/98 38 88
1/4/99 37 93
2/4/99 59 92
3/4/99 59 87
4/5/99 57 89
5/5/99 63 96
6/4/99 63 97
- ----------------------
Source: FactSet Research.
CONFIDENTIAL 5
10
BEAR
STEARNS
SECTION 3
FINANCIAL ANALYSES
11
BEAR
STEARNS PROJECT STAR TREK
ENTERPRISE VALUE / STOCK PRICE MATRIX
THE FOLLOWING TABLE ILLUSTRATES THE EQUIVALENT PER SHARE COMMON STOCK PRICES
FOR A RANGE OF INTEK ENTERPRISE VALUES FROM $150 MILLION TO $250 MILLION.
THIS TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY
COMMON STOCK PRICES PER SHARE ($ IN MILLIONS, EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------------------------------
Enterprise Value $150.0 $175.0 $200.0 $225.0 $250.0
Less: Total Debt(1) (42.9) (42.9) (42.9) (42.9) (42.9)
Less: Preferred Stock(1) (36.8) (36.8) (36.8) (36.8) (36.8)
Plus: Cash(1) 2.3 2.3 2.3 2.3 2.3
------ ------ ------ ------ ------
Equity Value 72.7 97.7 122.7 147.7 172.7
Diluted Shares Outstanding(2) 53.5 53.5 53.5 53.5 53.5
PRICE PER SHARE(2) $ 1.36 $ 1.83 $ 2.29 $ 2.76 $ 3.23
PRO FORMA PRICE PER SHARE(3) $ 1.41 $ 1.85 $ 2.30 $ 2.74 $ 3.18
(FULLY DRAWN DECEMBER 1998
CONVERTIBLE DEBT FACILITY)
- ---------------------------------------------------------------------------------------------------------------------------
- ----------
(1) As of March 31, 1999. Total debt excludes $17.5 million of indebtedness
convertible by Securicor into Intek common stock.
(2) Assumes conversion of $17.5 million outstanding under Securicor convertible
credit facility as follows: (i) $12.5 million at $1.50 per share, (ii) $2.5
million at $1.81 per share, and (iii) $2.5 million and accrued interest of
$0.3 at $1.90 per share. Does not include management stock options.
(3) Pro forma for the impact of $7.5 million of additional borrowings under the
Securicor credit facility (fully drawn) and assuming the proceeds are held
in cash and the debt is convertible at $2.36 per share, the average closing
price over the last 20 trading days ending June 4, 1999.
CONFIDENTIAL 6
12
BEAR
STEARNS PROJECT STAR TREK
INTEK HISTORICAL AND PROJECTED FINANCIAL RESULTS
THE SUMMARY CONSOLIDATED FINANCIAL PROJECTIONS BELOW WERE PREPARED BY INTEK'S
MANAGEMENT
SELECTED INCOME STATEMENT DATA ($ IN MILLIONS)
- ---------------------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 30,
-----------------------------------
ACTUAL
-----------------------------------
1996 1997 1998
----- ----- -----
Revenues
Product Sales $23.0 $38.6 $28.5
Service Income 0.9 3.7 7.1
----- ----- -----
TOTAL REVENUES 23.9 42.3 35.7
Growth Rate NA 76.9% (15.6%)
Gross Profit
Product Sales $3.1 $0.8 $8.4
Service Income 0.7 1.9 (0.2)
----- ----- -----
TOTAL GROSS PROFIT 3.8 2.7 8.2
Margin 16.0% 6.4% 23.0%
EBITDA ($8.9) ($21.5) ($18.8) (1)
Margin (37.3%) (50.7%) (52.7%)
OPERATING INCOME ($10.4) ($25.9) ($25.5) (1)
Margin (43.6%) (61.3%) (71.4%)
NET INCOME TO COMMON ($9.1) ($28.0) ($30.4) (1)
Margin (38.0%) (66.2%) (85.2%)
- -------------------------------------------------------------------
SELECTED INCOME STATEMENT DATA ($ IN MILLIONS)
- ----------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 30,
-------------------------------------------------------------------------------------
PROJECTED
-------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
----- ----- ----- ----- ------ ------
Revenues
Product Sales $39.0 $51.5 $69.3 $88.7 $100.1 $105.5
Service Income 5.5 18.0 35.7 64.6 100.9 134.8
----- ----- ----- ----- ------ ------
TOTAL REVENUES 44.5 69.6 105.0 153.3 201.0 240.3
Growth Rate 25.0% 56.2% 51.0% 46.0% 31.1% 19.6%
Gross Profit
Product Sales $9.8 $8.5 $5.6 $4.5 $5.6 $10.5
Service Income 1.3 7.3 20.8 44.4 74.7 103.7
----- ----- ----- ----- ------ ------
TOTAL GROSS PROFIT 11.1 15.8 26.4 48.9 80.3 114.2
Margin 25.0% 22.7% 25.1% 31.9% 40.0% 47.5%
EBITDA ($12.7) ($8.8) ($9.2) $2.9 $29.5 $63.8
Margin (28.5%) (12.7%) (8.8%) 1.9% 14.7% 26.5%
OPERATING INCOME ($18.8) ($15.8) ($18.0) ($9.6) $12.7 $45.0
Margin (42.3%) (22.7%) (17.2%) (6.2%) 6.3% 18.7%
NET INCOME TO COMMON ($28.8) ($25.2) ($29.6) ($24.3) ($3.9) $32.8
Margin (64.6%) (36.2%) (28.2%) (15.8%) (2.0%) 13.6%
- ------------------------------------------------------------------------------------------------------------------------
- --------------
(1) Excludes a restructuring charge of $1.6 million and an impairment of
long-lived assets charge of $34.4 million in fiscal 1998.
CONFIDENTIAL 7
13
BEAR
STEARNS PROJECT STAR TREK
INTEK HISTORICAL AND PROJECTED FINANCIAL RESULTS
THE SUMMARY CONSOLIDATED FINANCIAL PROJECTIONS BELOW WERE PREPARED BY INTEK'S
MANAGEMENT
SELECTED BALANCE SHEET AND CASH FLOW DATA ($ IN MILLIONS)
- ------------------------------------------------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 30,
-----------------------------------
ACTUAL
-----------------------------------
1996 1997 1998
----- ---- ----
SELECTED BALANCE SHEET DATA
Cash & Equivalents $0.4 $10.1 $5.7
Total Current Assets 33.4 34.4 31.2
Property, Plant & Equipment, net 6.6 21.6 23.6
Total Assets 50.3 112.6 80.1
Total Current Liabilities $38.7 $13.1 $20.3
Total Debt (including current maturities) 66.2 26.7 38.6
Preferred Stock 0.0 21.0 35.5
Stockholders' Equity (Deficit) (21.3) 53.8 (8.5)
SELECTED CASH FLOW DATA
Capital Expenditures ($1.7) ($9.2) ($7.1)
License Acquisition Costs 0.0 (2.0) (8.3)
Sales of Sites and Licenses 0.0 0.0 0.0
- -----------------------------------------------------------------------------------------
SELECTED BALANCE SHEET AND CASH FLOW DATA ($ IN MILLIONS)
- ---------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 30,
---------------------------------------------------------------------
PROJECTED
---------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
----- ----- ----- ------ ------ -----
SELECTED BALANCE SHEET DATA
Cash & Equivalents $0.5 $0.5 $0.5 $0.5 $0.5 $0.5
Total Current Assets 25.4 13.7 15.7 18.7 20.5 22.4
Property, Plant & Equipment, net 22.3 21.7 29.8 42.2 51.2 52.9
Total Assets 75.0 58.2 64.9 78.7 87.9 89.8
Total Current Liabilities $32.5 $32.0 $51.8 $70.1 $64.0 $77.8
Total Debt (including current maturities) 54.2 64.8 92.4 120.3 124.1 85.3
Preferred Stock 38.3 41.4 44.8 48.5 52.6 57.0
Stockholders' Equity (Deficit) (32.1) (57.6) (87.3) (111.5) (115.5) (82.7)
SELECTED CASH FLOW DATA
Capital Expenditures ($7.5) ($7.0) ($15.2) ($23.2) ($24.1) ($18.8)
License Acquisition Costs (7.5) 0.0 0.0 0.0 0.0 0.0
Sales of Sites and Licenses 5.0 5.0 0.0 0.0 0.0 0.0
- ------------------------------------------------------------------------------------------------------------------------------
CONFIDENTIAL 8
14
BEAR
STEARNS PROJECT STAR TREK
MANAGEMENT'S FINANCIAL PROJECTIONS - ROAMER ONE
SELECTED FINANCIAL DATA ($ IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 30,
-------------------------------------------------------------------------------------------------
PROJECTED
ACTUAL ---------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
------ ------ ------ ------- ------- ------- -------
Number of Markets NA 6 22 38 54 60 60
Year-End Subscribers 10,500 22,486 58,245 124,572 221,767 325,743 410,346
REVENUES $1.2 $8.1 $24.6 $55.7 $96.6 $135.7 $161.8
Growth NA 570.0% 213.2% 126.0% 73.6% 40.4% 19.3%
GROSS PROFIT ($3.8) ($1.9) $2.0 $11.2 $31.1 $59.7 $89.3
Margin NM (23.7%) 8.1% 20.1% 32.2% 44.0% 55.2%
EBITDA ($10.4) ($5.2) ($8.8) ($9.9) $0.6 $25.9 $58.2
Margin NM (64.5%) (35.6%) (17.8%) 0.7% 19.1% 36.0%
OPERATING INCOME ($11.5) ($9.2) ($14.6) ($17.9) ($10.9) $10.0 $40.2
Margin NM (113.6%) (59.4%) (32.2%) (11.3%) 7.4% 24.8%
- --------------------------------------------------------------------------------------------------------------------------------
CONFIDENTIAL 9
15
BEAR
STEARNS PROJECT STAR TREK
MANAGEMENT'S FINANCIAL PROJECTIONS - MIDLAND
SELECTED FINANCIAL DATA ($ IN MILLIONS)
- ----------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 30,
-------------------------------------------------------------------------------------------------
PROJECTED
ACTUAL ----------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
----- ----- ----- ----- ----- ----- -----
REVENUES $15.4 $29.4 $40.6 $44.5 $51.5 $58.5 $69.2
Growth NA 91.3% 38.2% 9.6% 15.6% 13.5% 18.4%
GROSS PROFIT $5.4 $7.2 $12.5 $13.8 $16.5 $18.8 $22.2
Margin 35.2% 24.5% 30.9% 31.1% 32.1% 32.2% 32.1%
EBITDA ($1.2) ($2.3) $2.5 $2.9 $4.2 $5.1 $6.4
Margin (7.7%) (5.5%) 6.2% 6.5% 8.2% 8.7% 9.3%
OPERATING INCOME ($1.4) ($2.6) $1.5 $1.8 $3.1 $3.9 $5.4
Margin (8.9%) (8.8%) 3.6% 3.9% 6.0% 6.7% 7.9%
- --------------------------------------------------------------------------------------------------------------------------------
CONFIDENTIAL 10
16
BEAR
STEARNS PROJECT STAR TREK
MANAGEMENT'S FINANCIAL PROJECTIONS - LM TECHNOLOGY
SELECTED FINANCIAL DATA ($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 30,
------------------------------------------------------------------------------------------------
PROJECTED
ACTUAL -------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
----- ---- ---- ---- ---- ---- ----
REVENUES $0.2 $2.5 $5.0 $5.9 $6.5 $8.4 $11.0
Growth NA NM 21.0% 16.7% 10.8% 30.0% 30.0%
GROSS PROFIT $0.1 $1.7 $2.0 $2.3 $2.6 $3.4 $4.4
Margin 47.4% 65.4% 40.0% 40.0% 40.0% 40.0% 40.0%
EBITDA ($3.9) $0.1 $0.7 $1.2 $1.5 $2.2 $2.9
Margin NM 2.6% 14.5% 21.2% 23.7% 26.6% 26.6%
OPERATING INCOME ($4.2) ($0.4) $0.2 $0.7 $1.0 $1.7 $2.3
Margin NM (17.3%) 4.2% 12.1% 15.1% 19.8% 21.2%
- ------------------------------------------------------------------------------------------------------------------------------
CONFIDENTIAL 11
17
BEAR
STEARNS PROJECT STAR TREK
INTEK VALUATION METHODOLOGY
- - In performing our analyses, we relied upon the financial projections and
operating assumptions developed by Intek management within the framework of
the Company's long-term business plan
- - Comparable company and comparable transaction multiple benchmarks are not
meaningful (see Appendix B)
- There is a lack of comparable companies given Intek's distinct mix of
business units - network operator, equipment distributor and research
and development division
- Due to the lack of near-term operating income and EBITDA, applying
comparable company and comparable transaction multiple benchmarks
results in a negative enterprise valuation
- Comparable company multiples to long-term forward EBITDA are not
reliable
- Revenue multiples can also be misleading as Intek's three business units
have different inherent gross and operating margins
- - As a result, we have used a discounted cash flow analysis, which we believe
is the appropriate analytical technique to value the Company
CONFIDENTIAL 12
18
BEAR
STEARNS PROJECT STAR TREK
DISCOUNTED CASH FLOW ANALYSIS
- - We performed a discounted cash flow analysis over a time horizon through
2004
- Cash flows are discounted to March 31, 1999 to value the Company based
on the latest balance sheet information and to account for the
year-to-date results of operations
- - The year 2004 terminal multiple is based on Intek's growth prospects at that
time
- RoameR One markets will be rolled out through 2003
- We selected a range of exit EBITDA multiples (7.0x - 9.0x) which would
otherwise imply a very high 8% - 12% perpetual growth rate but would be
appropriate given the then expected near-term growth of the Company
- However, we have also taken into account the capacity constraints faced
by RoameR One in each of its markets as well as RoameR One's focus on
low-end, simplex mobile communications
- - We used a range of discount rates from 15.0% - 18.0% based on our analysis
of the weighted average cost of capital of other PCS and wireless companies
similar to Intek
- - We assumed a "normalized" tax rate of 40%, as the Company will become a full
tax payer once its net operating losses are fully utilized
- - We separately calculated the present value of the tax savings resulting from
utilization of the Company's net operating loss carryforwards
CONFIDENTIAL 13
19
BEAR
STEARNS PROJECT STAR TREK
INTEK CONSOLIDATED FREE CASH FLOWS
THE FOLLOWING TABLE IS BASED UPON MANAGEMENT'S FINANCIAL PROJECTIONS
PROJECTED INTEK FREE CASH FLOWS ($ IN MILLIONS)
====================================================================================================================================
PROJECTED FISCAL YEAR ENDING SEPTEMBER 30,
-----------------------------------------------------------------------
1999(1) 2000 2001 2002 2003 2004
------ ------- ------- ------- ------- -------
EBITDA $ (3.4) $ (8.8) $ (9.2) $ 2.9 $ 29.5 $ 63.8
Less: Depreciation & Amortization (4.1) (7.0) (8.8) (12.4) (16.8) (18.8)
------ ------- ------- ------- ------- -------
EBIT (7.6) (15.8) (18.1) (9.6) 12.7 45.0
Less: Income Taxes(2) 0.0 0.0 0.0 0.0 (5.1) (18.0)
------ ------- ------- ------- ------- -------
Unlevered Net Income (7.6) (15.8) (18.1) (9.6) 7.6 27.0
Plus: Depreciation & Amortization 4.1 7.0 8.8 12.4 16.8 18.8
Plus: Decrease/(Increase) in Net Working Capital 3.6 6.3 3.4 3.5 3.4 1.7
Less: Capital Expenditures(3) (0.3) (2.0) (15.2) (23.2) (24.1) (18.8)
------ ------- ------- ------- ------- -------
Unlevered Free Cash Flow (0.1) (4.6) (21.1) (16.9) 3.7 28.6
Terminal Multiple of 2004 EBITDA 8.0x 510.1
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------
(1) 1999 represents 6 months ended September 30, 1999.
(2) Assumes tax rate of 40% once the Company achieves positive income.
(3) Net of proceeds from sale of sites and licenses to NRTC, which total $5
million in both 1999 and 2000.
CONFIDENTIAL 14
20
BEAR
STEARNS PROJECT STAR TREK
WEIGHTED AVERAGE COST OF CAPITAL
- - The weighted average cost of capital was calculated based on the following
PCS and wireless companies:
- Aerial Communications
- Clearnet Communications
- Nextel Communications
- Omnipoint Corp.
- Powertel Inc.
- United States Cellular Corp.
- Western Wireless Corp.
- - Key assumptions include:
- Cost of equity of 25.2% is computed based on the Capital Asset Pricing
Model using the following inputs:
- long-term risk-free rate of 5.9% (20-year Treasury Bond)(1)
- unlevered beta of 1.22 based on the average of other PCS and
wireless companies(2)
- levered beta of 1.95 based on Intek's target capital structure(2)
- equity risk premium of 8.2%(3)
- micro-capitalization equity size premium of 3.3%(3)
- After-tax cost of debt of 8.4%(4)
- Target debt / equity ratio of 100%(5)
- Normalized tax rate of 40%
- - WACC is estimated to be approximately 16.8%
- ----------
(1) Based on straight line interpolation of 10-year and 30-year Treasury bond
yields on June 4, 1999.
(2) Beta analysis is based on historical betas from Barra beta book, calculated
using 5-year monthly data.
(3) Source: Ibbotson Associates 1998.
(4) Based on current bond yields of wireless companies with public high yield
debt.
(5) Based on current capital structures and equity research reports for other
PCS and wireless companies.
CONFIDENTIAL 15
21
BEAR
STEARNS PROJECT STAR TREK
DISCOUNTED CASH FLOW VALUATION (BEFORE NOL TAX BENEFIT)
ENTERPRISE VALUE ($ IN MILLIONS)
================================================================================
2004 EBITDA MULTIPLE
-----------------------------------------------------
DISCOUNT RATE 7.0X 8.0X 9.0X
------------- ------ ------ ------
15.0% $193.2 $222.7 $252.3
16.0 183.5 211.7 239.9
17.0 174.4 201.3 228.2
18.0 165.8 191.5 217.2
- --------------------------------------------------------------------------------
EQUITY VALUE ($ IN MILLIONS)
================================================================================
2004 EBITDA MULTIPLE
-----------------------------------------------------
DISCOUNT RATE 7.0X 8.0X 9.0X
------------- ------ ------ ------
15.0% $115.8 $145.4 $175.0
16.0 106.2 134.4 162.6
17.0 97.1 124.0 150.9
18.0 88.5 114.2 139.8
- --------------------------------------------------------------------------------
CONFIDENTIAL 16
22
BEAR
STEARNS PROJECT STAR TREK
VALUATION OF NET OPERATING LOSS BENEFIT
- - The net operating loss valuation analysis calculates the present value of
the tax savings generated by the application of net operating loss
carryforwards to future income
- - We valued separately the Company's U.S. and U.K. net operating loss tax
benefits
- - Key assumptions include:
- Marginal tax rate of 40% in both the U.S. and U.K.
- Assumed pre-tax income growth rate beyond 2004 of 10.3%, which
represents the midpoint of the perpetual growth rate implied by the
discounted cash flow analysis (see page 22)
- Discount rate of 14%, which represents the Company's pre-tax cost of
debt
- - Aggregate present value of the U.S. and U.K. net operating loss tax savings
is estimated at approximately $26.4 million
CONFIDENTIAL 17
23
BEAR
STEARNS PROJECT STAR TREK
VALUATION OF U.S. NET OPERATING LOSS BENEFIT
U.S. NET OPERATING LOSS CARRYFORWARDS ($ IN MILLIONS)
=============================================================================================================================
PROJECTED FISCAL YEAR ENDING SEPTEMBER 30,
---------------------------------------------------------------------------------------------
1999(1) 2000 2001 2002 2003 2004 2005 2006 2007
------- -------- -------- -------- -------- -------- -------- ------- -------
Income (Loss) Before Taxes $ (8.2) $ (22.3) $ (26.9) $ (21.5) $ (1.6) $ 34.9 $ 38.5 $ 42.4 $ 46.8
NOL Beginning Balance(2) (3) 72.6 80.9 103.2 130.1 151.7 153.3 118.4 79.9 37.5
NOLs Added/(Utilized) 8.2 22.3 26.9 21.5 1.6 (34.9) (38.5) (42.4) (37.5)
---- ----- ----- ----- ----- ----- ----- ----- -----
NOL Ending Balance 80.9 103.2 130.1 151.7 153.3 118.4 79.9 37.5 0.0
Tax Savings (at 40%) 0.0 0.0 0.0 0.0 0.0 13.9 15.4 17.0 15.0
- ---------------------------------------
PRESENT VALUE OF TAX SAVINGS $ 24.6
- ---------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- ----------
(1) Figures for 1999 represent 6 months ended September 30, 1999.
(2) The Company has a limitation of $0.8 million per year on net operating
losses generated prior to Securicor's acquisition of its interest in Intek
in 1996, which constituted a "change in ownership" under Section 382 of the
Internal Revenue Code.
(3) Balance as of March 31, 1999 includes (i) NOL balance at 9/30/98 of $58.6
million and (ii) year-to-date pre-tax losses, excluding portion attributable
to U.K. operations. Source: 1998 10-K and 10-Q dated 3/31/99.
CONFIDENTIAL 18
24
BEAR
STEARNS PROJECT STAR TREK
VALUATION OF U.K. NET OPERATING LOSS BENEFIT
U.K. NET OPERATING LOSS CARRYFORWARDS ($ IN MILLIONS)
========================================================================================================
PROJECTED FISCAL YEAR ENDING SEPTEMBER 30,
------------------------------------------------------------------------
1999(1) 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------
Income (Loss) Before Taxes $(1.0) $ 0.2 $ 0.7 $ 1.0 $ 1.7 $ 2.3 $ 2.6
NOL Beginning Balance(2) 7.4 8.4 8.2 7.5 6.5 4.8 2.5
NOLs Added/(Utilized) 1.0 (0.2) (0.7) (1.0) (1.7) (2.3) (2.5)
----- ------ ------ ------ ------ ------ ------
NOL Ending Balance 8.4 8.2 7.5 6.5 4.8 2.5 0.0
Tax Savings (at 40%) 0.0 0.1 0.3 0.4 0.7 0.9 1.0
- --------------------------------------
PRESENT VALUE OF TAX SAVINGS $ 1.8
- --------------------------------------
- --------------------------------------------------------------------------------------------------------
- ----------
(1) Figures for 1999 represent 6 months ended September 30, 1999.
(2) Balance as of March 31, 1999 includes (i) NOL balance at 9/30/98 of $6.4
million and (ii) year-to-date pre-tax losses attributable to U.K.
operations. Source: 1998 10-K and 10-Q dated 3/31/99.
CONFIDENTIAL 19
25
BEAR
STEARNS PROJECT STAR TREK
INTEK VALUATION ANALYSIS
TOTAL ENTERPRISE VALUE ($ IN MILLIONS)
================================================================================
2004 EBITDA MULTIPLE
--------------------------------------------------
DISCOUNT RATE 7.0X 8.0X 9.0X
------------- ------ ------ ------
15.0% $219.6 $249.1 $278.7
16.0 209.9 238.1 266.3
17.0 200.8 227.7 254.6
18.0 192.2 217.9 243.5
- --------------------------------------------------------------------------------
TOTAL EQUITY VALUE ($ IN MILLIONS)
================================================================================
2004 EBITDA MULTIPLE
--------------------------------------------------
DISCOUNT RATE 7.0X 8.0X 9.0X
------------- ------ ------ ------
15.0% $142.2 $171.8 $201.4
16.0 132.6 160.8 189.0
17.0 123.5 150.4 177.3
18.0 114.9 140.6 166.2
- --------------------------------------------------------------------------------
CONFIDENTIAL 20
26
BEAR
STEARNS PROJECT STAR TREK
INTEK VALUATION ANALYSIS
SHARE PRICE
==========================================================================
2004 EBITDA MULTIPLE
---------------------------------------------
DISCOUNT RATE 7.0X 8.0X 9.0X
------------- ----- ----- -----
15.0% $2.64 $3.15 $3.67
16.0 2.47 2.96 3.46
17.0 2.31 2.78 3.25
18.0 2.16 2.61 3.06
- --------------------------------------------------------------------------
IMPLIED PERPETUAL GROWTH RATE(1)
==========================================================================
2004 EBITDA MULTIPLE
---------------------------------------------
DISCOUNT RATE 7.0X 8.0X 9.0X
------------- ----- ----- -----
15.0% 8.1% 8.9% 9.5%
16.0 9.0 9.8 10.5
17.0 10.0 10.8 11.4
18.0 10.9 11.7 12.4
- --------------------------------------------------------------------------
- ----------
(1) Growth rate beyond 2004 implied by the discount rate and year 2004 terminal
multiple.
CONFIDENTIAL 21
27
BEAR
STEARNS
APPENDICES
28
BEAR
STEARNS
APPENDIX A
LIST OF TARGET MARKETS FOR THE
ROAMER ONE ROLL-OUT
29
BEAR
STEARNS PROJECT STAR TREK
TARGET ROAMER ONE MARKETS
1ST TIER MARKETS
===================================================================================
MSA POPS MSA POPS
- ----------------------- ---------- ------------------ ---------
1. New York 19,938,492 25. Milwaukee 1,642,658
2. Los Angeles 15,495,155 26. Sacramento 1,632,133
3. Chicago 8,599,774 27. Norfolk 1,540,252
4. Washington-Baltimore 7,164,519 28. Indianapolis 1,492,297
5. San Francisco 6,605,428 29. SAN ANTONIO 1,490,111
6. Philadelphia 5,973,463 30. Columbus 1,447,646
7. Boston 5,563,475 31. Orlando 1,417,291
8. Detroit 5,284,171 32. CHARLOTTE 1,321,068
9. DALLAS 4,574,561 33. NEW ORLEANS 1,312,890
10. HOUSTON 4,253,428 34. Salt Lake City 1,219,842
11. Atlanta 3,541,230 35. Las Vegas 1,201,073
12. Miami 3,514,403 36. Buffalo 1,175,240
13. SEATTLE 3,320,829 37. Hartford 1,144,574
14. Cleveland 2,913,430 38. GREENSBORO 1,141,238
15. Minneapolis 2,765,116 39. Providence 1,124,044
16. PHOENIX 2,746,703 40. Nashville 1,117,178
17. San Diego 2,655,463 41. Rochester 1,088,037
18. St. Louis 2,548,238 42. Memphis 1,078,151
19. Pittsburgh 2,379,411 43. AUSTIN 1,041,330
20. Denver 2,277,401 44. OKLAHOMA CITY 1,026,657
21. Tampa Bay 2,199,231 45. RALEIGH 1,025,253
22. Portland 2,078,357 46. Grand Rapids 1,015,099
23. Cincinnati 1,920,931 47. Jacksonville 1,008,633
24. Kansas City 1,690,343
- -----------------------------------------------------------------------------------
- ----------
Based on June 1996 Bureau of Census data.
Note: Bold designates MSAs located in NRTC states.
CONFIDENTIAL 22
30
BEAR
STEARNS PROJECT STAR TREK
TARGET ROAMER ONE MARKETS (CONT.)
2ND TIER MARKETS
=======================================================================================
MSA POPS MSA POPS
- ----------------------- ---------- ------------------ ---------
1. West Palm Beach 992,840 28. Mobile 518,975
2. LOUISVILLE 991,765 29. Wichita 512,965
3. Dayton 950,661 30. MCALLEN 495,594
4. Richmond 935,174 31. Charleston 495,143
5. Greenville 896,679 32. Columbia 488,207
6. Birmingham 894,702 33. Fort Wayne 475,299
7. Albany 878,527 34. Colorado Springs 472,924
8. Honolulu 871,766 35. Johnson City 458,229
9. Fresno 861,753 36. Daytona Beach 456,464
10. TUCSON 767,873 37. Melbourne 453,998
11. TULSA 756,493 38. Augusta 453,612
12. Syracuse 745,691 39. Lancaster 450,834
13. EL PASO 684,446 40. Lansing 447,538
14. OMAHA 681,698 41. Chattanooga 446,096
15. ALBUQUERQUE 670,092 42. Kalamazoo 444,428
16. Knoxville 649,277 43. LEXINGTON 441,073
17. Scranton 628,073 44. Lakeland 440,954
18. Bakersfield 622,729 45. Des Moines 427,436
19. Harrisburg 614,755 46. Jacksonville 421,068
20. Allentown 614,304 47. Modesto 415,786
21. Toledo 611,417 48. SPOKANE 404,920
22. Youngstown 598,582 49. Saginaw 403,301
23. Springfield 576,561 50. Canton 402,928
24. BATON ROUGE 567,388 51. Madison 395,366
25. Little Rock-North Little Rock 548,352 52. Pensacola 385,820
26. Stockton 533,392 53. Santa Barbara 385,573
27. Sarasota 528,803
- --------------------------------------------------------------------------------------
- ----------
Based on June 1996 Bureau of Census data.
Note: Bold designates MSAs located in NRTC states.
CONFIDENTIAL 23
31
BEAR
STEARNS
APPENDIX B
COMPARABLE COMPANY AND
COMPARABLE TRANSACTION
ANALYSES
32
BEAR
STEARNS PROJECT STAR TREK
SELECTED COMPARABLE COMPANY FORWARD MULTIPLES
($ IN MILLIONS)
=====================================================================================================================
PROJECTED FISCAL YEAR
ENTERPRISE -------------------------------------------------------------
VALUE(1) 1999 2000 2001 2002 2003 2004
---------- ----- ----- ----- ------ ------ ------
CELLULAR COMPANIES
WESTERN WIRELESS $ 3,162
EV / Revenues 4.5x 3.5x 2.9x 2.5x 2.3x 2.1x
EV / EBITDA 37.8 12.8 7.9 6.0 5.0 4.5
UNITED STATES CELLULAR $ 4,806
EV / Revenues 3.7x 3.3x 3.0x 2.8x 2.6x NM
EV / EBITDA NM NM 7.6 6.8 6.2 NM
PCS COMPANIES
AERIAL COMMUNICATIONS $ 1,537
EV / Revenues 6.7x 4.3x 3.1x 2.4x 2.0x 1.8x
EV / EBITDA NM NM 55.1 10.7 6.0 4.5
CLEARNET C$ 2,302
EV / Revenues 6.0x 4.0x 2.9x 2.3x 1.9x 1.6x
EV / EBITDA NM 767.2 15.1 7.4 4.6 3.6
NEXTEL COMMUNICATIONS $20,981
EV / Revenues 9.7x 4.9x 4.1x 3.6x 3.3x 3.2x
EV / EBITDA 36.6 18.8 12.2 9.7 8.5 7.9
OMNIPOINT CORPORATION $ 3,707
EV / Revenues 11.9x 6.8x 4.6x 3.3x 2.6x 2.1x
EV / EBITDA NM NM NM 24.0 12.7 6.8
POWERTEL $ 1,798
EV / Revenues 6.3x 4.4x 3.3x 2.7x 2.2x 1.9x
EV / EBITDA NM 48.3 18.0 10.4 7.2 5.4
- ---------------------------------------------------------------------------------------------------------------------
HARMONIC MEAN
EV / Revenues 6.1x 4.2x 3.3x 2.7x 2.4x 2.0x
EV / EBITDA 37.2 26.1 12.5 8.9 6.5 5.1
- ---------------------------------------------------------------------------------------------------------------------
ROAMER ONE / LMT OPERATING DATA
Revenues $10.6 $29.6 $61.6 $103.1 $144.1 $172.8
EBITDA (5.1) (8.1) (8.7) 2.1 28.1 61.1
INTEK ENTERPRISE VALUE(2) $ 226.1
Less Implied Midland USA Enterprise
Value (3) 10.9
-------
Implied RoameR One / LMT Enterprise $ 215.2
Value
- ---------------------------------------------------------------------------------------------------------------------
ROAMER ONE / LMT IMPLIED MULTIPLES
EV / Revenues 20.3x 7.3x 3.5x 2.1x 1.5x 1.2x
EV / EBITDA NM NM NM 102.5 7.7 3.5
- ---------------------------------------------------------------------------------------------------------------------
Source: Revenues and EBITDA projections for comparable companies are taken from
selected Wall Street equity research reports.
(1) As of June 4, 1999.
(2) Intek's Enterprise Value of $226.1 million based on Securicor's offer price
of $2.75 per share.
(3) Equals Midland USA revenues multiplied by harmonic mean of revenues for
distributors and manufacturers of telecommunications equipment (0.4x in
1999, 0.3x in 2000).
CONFIDENTIAL 24
33
BEAR
STEARNS PROJECT STAR TREK
SELECTED COMPARABLE COMPANY FORWARD MULTIPLES
($ IN MILLIONS)
================================================================================
ENTERPRISE PROJECTED FISCAL YEAR
VALUE(1) 1999 2000
-------- ---- ----
ANDREW CORP. $1,338
EV / Revenues 1.7x 1.5x
EV / EBITDA 9.7 7.8
ANICOM $324
EV / Revenues 0.5x NA
EV / EBITDA 7.7 NA
ANIXTER INTERNATIONAL $1,038
EV / Revenues 0.4x 0.4x
EV / EBITDA 7.8 7.3
AUDIOVOX $197
EV / Revenues 0.1x 0.1x
EV / EBITDA 3.2 2.2
GLENAYRE TECHNOLOGIES $213
EV / Revenues 0.6x 0.5x
EV / EBITDA 5.6 2.9
TESSCO TECHNOLOGIES $102
EV / Revenues 5.4x 4.5x
EV / EBITDA 86.0 63.5
- -----------------------------------------------------------------------------
HARMONIC MEAN
EV / Revenues 0.4x 0.3x
EV / EBITDA 7.0 4.6
- -----------------------------------------------------------------------------
- ----------
Source: Revenues and EBITDA projections for comparable companies are taken from
Wall Street research reports.
(1) As of June 4, 1999.
(2) Enterprise Value is based on Securicor's offer price of $2.75 per share.
CONFIDENTIAL 25
34
BEAR
STEARNS PROJECT STAR TREK
SELECTED COMPARABLE M&A TRANSACTIONS
===================================================================================================================================
ENTERPRISE VALUE /
DATE ENTERPRISE EQUITY VALUE / -----------------------------------
ACQUIROR / TARGET ANNOUNCED VALUE BOOK VALUE LTM REVENUES LTM EBITDA LTM EBIT
----------------- --------- ---------- -------------- ------------ ---------- --------
Alltel / 360 Communications Co. 3/16/98 $6,106.7 8.1x 4.7x 14.3x 24.8x
American Cellular / PriCellular 3/9/98 1,319.0 6.0 7.3 20.0 35.4
Rural Cellular / Atlantic Cellular Corporation 2/13/98 256.0 NA 6.4 12.4 NA
AirTouch Communications / US West Cellular Division 1/29/98 5,481.7 15.4 4.2 11.1 16.7
Price Communications / Palmer Wireless 5/23/97 883.3 3.0 5.6 12.6 20.4
Blackstone Group / CommNet Cellular 5/28/97 748.0 8.9 6.1 17.6 36.0
- ----------------------------------------------------------------------------------------------------------------------------------
HARMONIC MEAN 6.3x 5.5x 14.1x 24.4x
- ----------------------------------------------------------------------------------------------------------------------------------
INTEK $226.1(1) NM 7.3x NM NM
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------
(1) Enterprise Value is based on Securicor's offer price of $2.75 per share.
CONFIDENTIAL 26
35
BEAR
STEARNS PROJECT STAR TREK
SELECTED COMPARABLE M&A TRANSACTIONS
=================================================================================================================================
ENTERPRISE VALUE /
---------------------------
EQUITY
DATE ENTERPRISE VALUE / LTM LTM LTM
ACQUIROR / TARGET TARGET BUSINESS DESCRIPTION ANNOUNCED VALUE BOOK VALUE REVENUES EBITDA EBIT
----------------- --------------------------- --------- ----- ---------- -------- ------ -----
Arrow Electronics /
Richey Electronics Electronic components distribution 1/7/99 $176.7 2.2x 0.7x 3.4x 3.7x
Anicom Inc. /
Texcan Cable Cable and wire distribution 9/22/98 48.8 2.3x 0.4x 6.8x 7.5x
Digital Microwave /
Innova Corp. Wireless communication equipment
distribution 7/23/98 120.3 2.5x 2.5x 32.6x 83.9x
United Stationers Inc. /
Azerty Office supplies distribution 2/10/98 115.2 0.5x 0.3x 9.1x 10.0x
Unisource Worldwide /
National Sanitary Supply Industrial products distribution 8/11/97 155.9 2.0x 0.5x 10.8x 16.3x
- ---------------------------------------------------------------------------------------------------------------------------------
HARMONIC MEAN 1.3x 0.5x 7.4x 8.6x
- ---------------------------------------------------------------------------------------------------------------------------------
INTEK $226.1(1) NM 7.3x NM NM
- ---------------------------------------------------------------------------------------------------------------------------------
- ----------
(1) Enterprise Value is based on Securicor's offer price of $2.75 per share.
CONFIDENTIAL 27