EXHIBIT (C)(2)
Confidential
Project Northface
PRESENTATION TO THE BOARD OF DIRECTORS
May 7, 2000
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PROJECT NORTHFACE
Table of Contents
1 EXECUTIVE SUMMARY
2 OVERVIEW OF VAIL
A. Summary of Vail Market Information
B. Summary Valuation Analysis of Vail
APPENDIX
A. Weighted Average Cost of Capital
B. Precedent Transactions and Premiums Analysis
C. Vail Comparable Company Analysis
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PROJECT NORTHFACE
Confidential Material Presented to the Board of Directors of Vail
The following pages contain material provided to the Board of Directors of
Vail in the context of a meeting held to consider a proposed transaction in
which Northface would acquire Vail. The accompanying material was compiled
or prepared on a confidential basis for use by the Board of Directors and
not with a view toward public disclosure under state or federal securities
laws. The basic information utilized in preparing this study was obtained
from Vail and other public sources. Any estimates and projections for Vail
contained herein have been prepared with the assistance of management, or
are based upon such estimates and projections, and involve numerous and
significant subjective determinations, which may or may not prove to be
correct. No representation or warranty, express or implied, is made as to
the accuracy or completeness of such information and nothing contained
herein is, or shall be relied upon as, a promise or representation, whether
as to the past or the future. Because this material was prepared for use in
the context of an oral presentation to the Board of Directors, which is
familiar with the business and affairs of Vail, and was not prepared to
comply with the disclosure standards set forth under state and federal
securities laws, none of Vail or Salomon Smith Barney Inc. or any of their
respective legal or financial advisors or accountants take any
responsibility for the accuracy or completeness of any of the material if
used by persons other than the Board of Directors of Vail. Neither Vail nor
Salomon Smith Barney Inc. undertakes any obligation to update or otherwise
revise the accompanying materials.
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PROJECT NORTHFACE
1 EXECUTIVE SUMMARY
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PROJECT NORTHFACE
Summary of Key Terms
Term Summary Description
Transaction Structure . Two-step merger (cash tender offer followed by a merger) in which a wholly owned
U.S. subsidiary (the "Merger Sub") of Northface will merge with and into Vail (the
"Surviving Corporation")
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Tender Offer . The Merger Sub will make a tender offer to purchase (i) any and all of the shares
of Vail Common Stock and (ii) any and all of the shares of Vail Series A Preferred
Stock
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Conditions of the Tender Offer . More than 50% of the Common Stock must tender on a fully diluted basis. Vail
shares already owned by Northface and the Merger Sub (approximately 8.3% of fully
diluted shares outstanding) will count toward the 50% condition
. Expiration of the HSR waiting period or any other waiting periods under applicable
foreign laws
. Expiration of any applicable review process under the Exon-Florio Act
. No Material Adverse Change shall have occurred
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Purchase Price . $60.00 per share of Vail Common Stock
. $62.14 per share of Vail Preferred Stock
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Termination Fee . Approximately 3% of Vail's equity value based on the offer price
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Non-Solicitation . Customary non-solicitation covenants
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Retention and Incentive Plan . Prior to the first scheduled expiration of the tender offer, Northface and Vail
shall discuss and explore mutually agreeable retention and incentive plans with
respect to the employees and officers of Vail and its subsidiaries, to be
adopted prior to the consummation of the tender offer and effective immediately
after consummation of the merger
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Options . Options to be monetized in accordance with the terms set forth in the Merger
Agreement
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1
PROJECT NORTHFACE
Premium Analysis
(Dollars in millions, except per share data) Offer Price
Vail ----------------------------------
Data $60.00
- --------------------------------------------------------------------------------------------------------------------
Market Prices Premium (Discount) to Market
Market (May 05, 2000) $35.94 67.0%
5 Trading Days Average 34.66 73.1
20 Trading Days Average 31.83 88.5
40 Trading Days Average 40.12 49.6
60 Trading Days Average 50.21 19.5
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Market Capitalization $4,951
Equity Value (a) 6,184
Firm Value (b) 6,375
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Revenues Firm Value/Revenues
1999A $258.3 24.7x
LQA (c) 324.4 19.7
2000E (d) 415.3 15.4
2001E (d) 706.0 9.0
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(a) Based on 108.5 million fully diluted shares (assuming conversion of
convertible preferred shares and vesting of all options) and option proceeds
of $326 million.
(b) Net debt of $191 as of March 31, 2000, which is comprised of $1,104 debt
less $849 of cash less an investment in unconsolidated subsidiaries of $63.
(c) LQA results are for the quarter ended March 31, 2000.
(d) Based on Wall Street research estimates and reviewed by Vail management.
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PROJECT NORTHFACE
Vail Price Performance
DAILY DATA: MAY/05/1999 THROUGH MAY/05/2000
[LINE CHART APPEARS HERE]
Summary Statistics
High Low Average Latest
Vail 80.00 23.69 41.70 35.94
Source: Salomon Smith Barney sb274673.wmf
(a) 06/17/99 Vail and AOL UK announces an exclusive marketing
agreement for Web-hosting, e-commerce and domain name registration services.
(b) 07/13/99 Vail announces the acquisition of digitalNATION for $100 mm
in cash.
(c) 07/15/99 Vail announces the completion of a $360 million convertible
offering.
(d) 07/22/99 Vail announces 2:1 stock split.
(e) 10/27/99 Vail announces 3rd Quarter results and reaches positive
EBITDA milestone.
(f) 11/04/99 Vail reaches 300,000 web-site benchmark.
(g) 11/16/99 Vail announces $400 million private debt offering.
(h) 12/14/99 Vail, CIBER and Centennial Ventures announce initial
intentions to form an Application Service Provider ("ASP") joint venture.
(i) 01/12/00 Vail launches Enhanced Global Domain Name Registration
Services.
(j) 01/31/00 Vail announces plans to accelerate Web Hosting and co-location
physical infrastructure, systems and personnel. Herb Hribar, President and
COO, announces resignation effective Feb 4th.
(k) 03/01/00 Vail announces 4Q99 earnings that are in line with Wall Street
estimates. Vail, CIBER and Centennial Ventures sign definitive agreements to
form a new ASP joint venture, Agilera.Com.
(l) 03/20/00 Vail asks its shareholders to increase its authorized common
shares to 750 million from 125 million and to increase authorized preferred
to 20 million from 12.5 million.
(m) 04/26/00 Vail and Gateway form strategic alliance to provide
comprehensive Internet services for small and medium-sized business.
Vail announces growth rate accelerates in first quarter.
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PROJECT NORTHFACE
Current Price Offer Price
Per Share (a): Per Share:
$35.94 $60.00
Public Market Valuation
Discounted Cash Flow $40 $51
Valuation (b)
$53 $73
Premiums-Based
Private Market Valuation $50 $56
(Sector Transactions) (c)
$49 $52
Premiums-Based
Private Market Valuation $43 $46
(All Transactions) (d)
Multiples-Based
Private Market Valuation (c)
$0 $10 $20 $30 $40 $50 $60 $70 $80 $90
. 52 Week Trading Range
(a) Closing share price as of 5/5/00.
(b) Based on Wall Street research estimates and reviewed by Vail management.
(c) Private market valuation multiples and premiums are based on NEXTLINK's
acquisition of Concentric and McLeodUSA's acquisition of Splitrock.
(d) Based on a sample of 1,722 transactions over the last 3 years as measured
by Mergerstat (12/31/99).
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6.75% Series A Convertible Preferred Stock
Common Public Market Valuation Range
Market ------------------------------------
05/05/00 Low High
Common Stock Price $35.94 $40.40 $51.38
Common Stock Conversion Rate 1.0356 1.0356 1.0356
Offer Price Parity Value $62.14 $62.14 $62.14
Convertible Preferred Theoretical Valuation (a) $46.86 $50.27 $58.91
Convertible Preferred Market Valuation 45.79 49.11 57.56
Market Discount to Theoretical Valuation 2.3% 2.3% 2.3%
Parity Value Premium to Implied Market Valuation 35.7% 26.5% 8.0%
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(a) Valuation assumes 30-Year Treasury of 6.19%, credit spread of 7.27% and
volatility of 50%.
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PROJECT NORTHFACE
2 OVERVIEW OF VAIL
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PROJECT NORTHFACE
A. Summary of Vail Market Information
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Vail Relative Price Performance
DAILY DATA: MAY/05/1999 THROUGH MAY/05/2000
[LINE CHART APPEARS HERE]
Summary Statistics:
High Low Average Latest
Vail 238% 70% 124% 106%
Web Hosting Comparables 746% 83% 297% 369%
Access Comparables 229% 99% 169% 139%
NASDAQ Composite Index 199% 93% 132% 150%
Source: Salomon Smith Barney sb274670.wmf
Web Hosting Comparables: DRTN, DIGX, EXDS, NAVI
Access Comparables: ATHY, ENT, IIJI, PSIX, VNWI
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PROJECT NORTHFACE
Selected Analyst Commentary--Vail
Analyst Date Price at Report Date Rating Comment
Salomon Smith 04/27/00 $26.44 BUY "Vail has continued to demonstrate its successful shift towards its
Barney enhanced services business. The company has also successfully
Jack Grubman / partnered with major software and hardware vendors to deliver the
Stephen Mahedy best-of-breed, bundled Web hosting and managed services to its
small-to-medium sized business customers. We are reiterating our
1S (Buy, Speculative Risk) rating on shares of Vail."
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PaineWebber 05/03/00 $29.00 ATTRACTIVE "The shares are off significantly from their highs based on the
John Hodulik company's deceleration of revenue in the previous three quarters.
We believe the first quarter is a sign of things to come and expect
continue acceleration in the second and third quarter. Its enhanced
business lines are strong and product lines and distribution
continue to improve. We maintain an attractive rating and a
12-month price target of $75 per share based on our DCF analysis."
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Lehman Brothers 05/01/00 $29.00 BUY "The company reported in-line 1Q00 results demonstrating revenue
Bill Garrahan acceleration and continued growth in web hosting and enhanced
services in the revenue mix. We continue to believe that Vail is
well positioned to attack the Small/Med. Bus. Mkt with a bundled
offering of hosting, E-Commerce, outsourced applications, and
broadband access. We reiterate our Buy rating on Vail. Vail is
trading at 4.5x '01 revenue which is less than 10% of our expected
revenue CAGR for '01-'04 of 48%. This is at the low end of
historic multiples."
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Credit Suisse 04/28/00 $29.00 BUY "We believe that Vail has the right strategy needed to sustain a
First Boston strong competitive position in the SME web hosting industry. Through
Tim Newington the offering of high margin value-added services, the company can
better service its customers' complex and sophisticated service
requirements, as they become more involved in the e-commerce
industry. Enhanced services will also allow Vail to increase the
potential revenue generated from each customer and strengthen its
ability to attract new customers and retain existing customers.
We believe the company has all the pieces in place to achieve our
revenue growth expectations of 58% for this year. We maintain
our Buy recommendation on the stock."
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PROJECT NORTHFACE
Selected Analyst Commentary--Vail (continued)
Analyst Date Price at Report Date Rating Comment
DLJ 04/28/00 $29.00 BUY "The Gateway relationship brings yet another powerful distribution
Harry E. Blount 0 channel to Vail. Under their agreement, Gateway will, over the
course of the next two months, begin to offer a wide-range of Vail
services including web hosting, domain name registration services,
DSL, and dedicated and dial-up Internet access. Overall, we are
pleased with the re-acceleration in the hosting and enhanced
services businesses. We believe this will be one of the most
critical variables for Vail to achieve an improved valuation. We
continue to rate Vail a Buy with a price target of $80."
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Deutsche Banc 04/28/00 $29.00 STRONG BUY "Despite its attractiveness, Vail shares trade at a 70%-plus
Alex. Brown 0 discount to other Web-hosting plays in it peer group. We believe
Michael G. Bowen this is from the residual perception of the company as an ISP
roll-up. We are reiterating our Strong Buy rating on the shares
and 4Q00 price target of $90 (enterprise value of 21.6x our 2000
revenue estimate and 13.0x our 2001 revenue estimate)."
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Morgan Stanley 04/28/00 $29.00 OUTPERFORM "Despite the space constraints at this early stage, co-location
Jeffrey Camp 0 revenues increased by 19% over the prior quarter. By product type,
shared hosting revenues increased by 10% and dedicated expanded by
50%. Vail is reportedly considering accelerating the offering of
higher-margin enhanced services in their new co-location
datacenters during 2000 versus their current plan of 2001. We
believe Vail is on track to produce accelerating revenues over the
course of 2000 and are maintaining our forecasts, Outperform rating
and $66 price target based upon a 10-year discounted cash flow
analysis."
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CIBC World 04/27/00 $28.56 BUY "Its solid 1Q00 results reinforce our thesis that, as we move to
Markets 0 network-centric computing, Vail should emerge as a leading
Stephen J. Internet/computing services supplier for small businesses because
Murphy of its wide sales channels, network and services infrastructure and
strong management team. We are setting a new price target of $60
which is 8x our 2001E revenue, on par where Vail has frequently
traded in the past."
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PROJECT NORTHFACE
B. Summary Valuation Analysis of Vail
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PROJECT NORTHFACE
Current Price Offer Price
Per Share (a): Per Share:
$35.94 $60.00
Public Market Valuation $40 $51
Discounted Cash Flow
Valuation (b) $53 $73
Premiums-Based
Private Market Valuation
(Sector Transactions) (c) $50 $56
Premiums-Based
Private Market Valuation
(All Transactions) (d) $49 $52
Multiples-Based
Private Market Valuation (c) $43 $46
52 Week Trading Range
(a) Closing share price as of 5/5/00.
(b) Based on Wall Street research estimates and reviewed by Vail management.
(c) Private market valuation multiples and premiums are based on NEXTLINK's
acquisition of Concentric and McLeodUSA's acquisition of Splitrock.
(d) Based on a sample of 1,722 transactions over the last 3 years as measured
by Mergerstat (12/31/99).
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PROJECT NORTHFACE
Summary of Projections for Vail
(Dollars in Millions)
[BAR CHART APPEARS HERE]
REVENUES EBITDA
1999 $ 258 1999 $ (9)
2000E $ 415 2000E $ 6
2001E $ 706 2001E $ 72
2002E $1,094 2002E $ 155
2003E $1,634 2003E $ 277
2004E $2,345 2004E $ 457
2005E $3,233 2005E $ 705
2006E $4,272 2006E $1,019
2007E $5,402 2007E $1,392
2008E $6,521 2008E $1,811
2009E $7,499 2009E $2,236
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Source: Based on Wall Street research estimates and reviewed by Vail management.
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PROJECT NORTHFACE
Summary of Projections for Vail
(Dollars in Millions)
Fiscal Year Ending December 31,
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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Operating Revenues
Dedicated $ 143 $ 188 $ 269 $ 384 $ 534 $ 721 $ 945 $1,199 $1,457 $1,693
Dial-up 21 30 32 34 35 35 34 32 28 23
Enhanced Services/Other 252 487 794 1,216 1,776 2,477 3,293 4,171 5,035 5,782
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Total Revenues $ 415 $ 706 $1,094 $1,634 $2,345 $3,233 $4,272 $5,402 $6,521 $7,499
Gross Profit 297 519 819 1,226 1,759 2,416 3,168 3,969 4,752 5,423
EBITDA 6 72 155 277 457 705 1,019 1,392 1,811 2,236
EBIT (199) (210) (170) 28 226 447 735 1,161 1,555 1,957
Capital Expenditures 350 110 135 160 185 210 235 260 285 310
Operating Statistics
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Total Revenue Growth 60.8% 70.0% 55.0% 49.3% 43.6% 37.9% 32.1% 26.4% 20.7% 15.0%
Gross Profit Growth 65.8 75.0 57.7 49.7 43.5 37.3 31.2 25.3 19.7 14.1
EBITDA Growth -- 1,055.1 113.6 79.2 65.1 54.2 44.5 36.7 30.O 23.5
EBIT Growth -- -- -- -- 697.3 97.7 64.2 58.1 33.9 25.8
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Gross Margin 71.5% 73.6% 74.8% 75.1% 75.0% 74.7% 74.2% 73.5% 72.9% 72.3%
EBITDA Margin 1.5 10.2 14.1 16.9 19.5 21.8 23.8 25.8 27.8 29.8
EBIT Margin (47.8) (29.7) (15.5) 1.7 9.6 13.8 17.2 21.5 23.8 26.1
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(Dollars in Millions)
CAGR
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'00-05 '00-09
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Operating Revenues
Dedicated 38.2% 31.6%
Dial-up 11.5 1.5
Enhanced Services/Other 58.0 41.7
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Total Revenues 50.8 37.9
Gross Profit 52.1 38.1
EBITDA 157.2 92.1
EBIT -- --
Capital Expenditures (9.7) (1.3)
Operating Statistics
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Total Revenue Growth
Gross Profit Growth
EBITDA Growth
EBIT Growth
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Gross Margin
EBITDA Margin
EBIT Margin
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Note: Based on Wall Street research estimates and reviewed by Vail management.
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PROJECT NORTHFACE
Vail Sum of Parts Valuation
(Dollars in Millions, except per share data)
SUM OF THE PARTS
Firm Value/ Vail Implied Firm Value
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Revenue Revenue(a) Low High
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Vail Connectivity (b)
2000 Revenue 5.0X - 6.Ox $163.6 $ 818 - $982
2001 Revenue 3.Ox - 4.Ox 218.6 656 - 874
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Mean $ 737 - $928
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Vail Web Hosting (c)
Growth Adjusted 2000 Revenue (d) 20.8x - 26.8x $213.7 $4,448 - $5,719
Growth Adjusted 2001 Revenue (d) 9.2x - 11.9X 436.6 4,032 - 5,184
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Mean $4,240 - $5,452
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Vail Other
Other 2000 Revenue (e) l.0X - 1.0X $38.0 $ 38 - $ 38
Other 2001 Revenue (e) l.0X - l.0X 50.7 51 - 51
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Mean $ 44 - $ 44
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Firm Value $5,022 - $6,424
Less: Net Debt and Option Proceeds (135) - (135)
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Equity Value $5,157 - $6,559
Shares Outstanding 108.5 108.5
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Implied Public Market Equity Value per Share Before Holding Company Discount $47.52 - $60.45
Holding Company Discount 15.0% - 15.0%
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Implied Public Market Equity Value per Share $40.40 - $51.38
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(a) Based on Wall Street research estimates and reviewed by Vail management.
(b) Vail Connectivity multiples based on a range of firm value/2000E and 2001E revenue multiples within the peer group.
(c) Vail Web Hosting revenues include shared web hosting, dedicated web hosting and collocation revenues.
(d) Vail Web Hosting multiples based on a 10-30% discount to Digex's'growth adjusted revenue multiples.
(e) Includes equipment, circuits and other revenue.
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PROJECT NORTHFACE
Vail Sum of Parts Valuation - Web Hosting
(Dollars in Millions, except per share data)
DIGEX REVENUE PROJECTIONS (a) DIGEX GROWTH ADJUSTED MULTIPLES
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2000E Revenues $ 150 Firm Value $5,115
2001E Revenues 285 Firm Value / 200OF Revenue 34.1x
2003E Revenues 941 Firm Value / 2001E Revenue 17.9
2000E - 2003E CAGR 84.5% (Firm Value / 2000E Revenue) / ('OOE-'03E CAGR) 40.4
2001E - 2003E CAGR 81.7% (Firm Value / 2001E Revenue) / ('01E-'03E CAGR) 22.0
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Selected Growth Adjusted Multiple Range
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VALUATION OF VAIL WEB HOSTING Low (b) High (b)
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(Firm Value/ Revenue)/ Revenue CAGR
2000E - 2003E 28.3x 36.3x
2001E - 2003E 15.4 19.8
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Vail Web Hosting Revenue CAGRs
2000E - 2003E (a) 73.7% 73.7%
2001E - 2003E (a) 60.1% 60.1%
Vail Web Hosting Revenue
2000E Revenue $ 214 $ 214
2001E Revenue 437 437
2003E Revenue 1,119 1,119
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Implied Value of Vail Web Hosting
Based on 2000E - 2003E Revenue CAGR $4,448 $5,719
Based on 2001E - 2003E Revenue CAGR 4,032 5,184
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Selected Value Range $4,240 $5,452
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(a) Digex statistics based on Wall Street research estimates. Vail statistics based
Wall Street estimates and reviewed by Vail management.
(b) Based on a 10% (high) to 30% (low) discount of Digex's' growth adjusted
revenue multiple.
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PROJECT NORTHFACE
Vail Discounted Cash Flow Analysis Assumptions
. Vail projections are based on Wall Street research and reviewed by Vail management
. Weighted average cost of capital range of 15.5% - 17.5%
. Terminal EBITDA multiple range of 10x - 12x terminal 2009 EBITDA of $2,236 million
. Tax rate of 38%
. Net operating losses of $263 million as of December 31st, 1999
. Capitalization is based on March 31st, 2000, balance sheet information. Shares Outstanding
information is based on May 5, 2000, data:
SHARES OUTSTANDING (IN MILLIONS) 3/31/00
--------------------
Common Shares Outstanding: 82.5
Shares Underlying Convertible Preferred: 7.5
Option/Warrant Shares Outstanding: 18.5
--------------------
Total Shares Outstanding: 108.5
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NET DEBT OUTSTANDING (IN MILLIONS)
Total Debt: $ 1,104
Cash and Cash Equivalents: (849)
Investments in Unconsolidated Subsidiaries: (63)
Option Proceeds: (326)
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Total Net Debt $ (135)
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Vail Discounted Cash Flow Analysis
(Dollars in Millions, except per share data)
(Dollars in Millions, except per share data)
Terminal Year 2009 EBITDA Multiple Range
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10.0x 10.5x ll.0x 11.5x 12.0x
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Terminal Year 2009 Value
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$22,357 $23,475 $24,593 $25,711 $26,829
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WACC Firm Value as of 4/30/00
- -----------------------------------------------------------------------------------
15.5% $6,659 $6,937 $7,214 $7,492 $7,770
16.0% 6,392 6,658 6,925 7,191 7,457
16.5% 6,137 6,392 6,647 6,903 7,158
17.0% 5,892 6,137 6,382 6,627 6,872
17.5% 5,658 5,893 6,128 6,363 6,599
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WACC Implied Perpetuity Growth Rate
- -----------------------------------------------------------------------------------
15.5% 9.6% 9.8% 10.1% 10.3% 10.5%
16.0% 10.0 10.3 10.6 10.8 11.0
16.5% 10.5 10.8 11.0 11.3 11.5
17.0% 11.0 11.3 11.5 11.7 12.0
17.5% 11.5 11.7 12.0 12.2 12.4
- -----------------------------------------------------------------------------------
Terminal Year 2009 EBITDA Multiple Range
------------------------------------------------------------------
10.0x 10.5x ll.0x 11.5x 12.0x
------------------------------------------------------------------
Terminal Year 2009 Value
------------------------------------------------------------------
$22,357 $23,475 $24,593 $25,711 $26,829
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WACC Equity Value as of 4/30/00 (a)
- -----------------------------------------------------------------------------------
15.5% $6,794 $7,072 $7,349 $7,627 $7,905
16.0% 6,527 6,793 7,060 7,326 7,592
16.5% 6,272 6,527 6,782 7,038 7,293
17.0% 6,027 6,272 6,517 6,762 7,007
17.5% 5,793 6,028 6,263 6,498 6,733
- -----------------------------------------------------------------------------------
WACC Equity Value per Share as of 4/30/00 (b)
- -----------------------------------------------------------------------------------
15.5% $62.62 $65.18 $67.73 $70.29 $72.85
16.0% 60.16 62.61 65.06 67.52 69.97
16.5% 57.80 60.15 62.51 64.86 67.21
17.0% 55.55 57.80 60.06 62.32 64.58
17.5% 53.39 55.56 57.72 59.89 62.06
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(a) Equity value is equal to firm value less net debt and option proceeds of
$(135) million.
(b) Assumes fully diluted shares outstanding of 108.5 million.
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PROJECT NORTHFACE
Wall Street Research Valuation Methodology Comparison
- -------------------------------------------------------------------------------
DCF
----------------------------------------
WACC Terminal Multiple Years
Vail
Salomon Smith Barney (3/16/00) 15.0% 14.9x 10
Morgan Stanley Dean Witter (3/16/00) 13.7% 12.6 10
Wasserstein Perella (3/2/00) 15.0% 9.0 10
Thomas Weisel Partners LLC (2/l/00) 14.0% 12.0 10
DLJ (1/11/00) 16.0% 10.0 10
Baird (12/22/99) 16.0% 11.0 7
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Vail Premiums-Based Private Market Valuation
(Dollars in Millions, except per share data)
PREMIUMS-BASED PRIVATE MARKET VALUATION (SECTOR TRANSACTIONS)
- -------------------------------------------------------------------------------------------------------------------------
Premium (a) Implied Firm Value
Viper ----------------- -------------------
Trailing Average Share Price Statistic Low High Low High
--------- ----------------- -------------------
Midpoint Public Market Valuation $45.89 33.8% 50.0% $6,527 $7,334
1 Day 35.94 33.8 50.0 5,082 5,714
5 Day Average 34.66 33.8 50.0 4,897 5,507
20 Day Average 31.83 33.8 50.0 4,486 5,046
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Implied Firm Value $5,248 $5,900
Less: Net Debt and Option Proceeds (135) (135)
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Equity Value $5,383 $6,035
Shares Outstanding 108.5 108.5
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Price Per Share $49.61 $55.62
- -------------------------------------------------------------------------------------------------------------------------
PREMIUMS-BASED PRIVATE MARKET VALUATION (ALL TRANSACTIONS)
- -------------------------------------------------------------------------------------------------------------------------
Premium Implied Firm Value
Viper --------------------- -------------------
Trailing Average Share Price Statistic Low (b) High (b) Low High
--------- --------------------- -------------------
Midpoint Public Market Valuation $45.89 31.3% 40.4% $6,403 $6,856
1 Day 35.94 31.3 40.4 4,985 5,340
5 Day Average 34.66 31.3 40.4 4,803 5,145
20 Day Average 31.83 31.3 40.4 4,400 4,714
-------------------
Implied Firm Value $5,148 $5,514
Less: Net Debt and Option Proceeds (135) (135)
-------------------
Equity Value $5,283 $5,649
Shares Outstanding 108.5 108.5
-------------------
Price Per Share $48.69 $52.06
- -------------------------------------------------------------------------------------------------------------------------
(a) Premiums based on NEXTLINK's acquisition of Concentric and McLeodUSA's acquisition of Splitrock.
(b) Based on mean and median premiums of 1,722 transactions over the last 3 years as measured by Mergerstat.
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PROJECT NORTHFACE
Vail Multiples-Based Private Market Valuation
(Dollars in Millions, except per share data)
MULTIPLES-BASED PRIVATE MARKET VALUATION
- ----------------------------------------------------------------------------------------------------------------
Multiple (a) Implied Firm Value
Vail ------------------------ -----------------------
Revenue Statistic Low High Low High
------------- ------------------------ -----------------------
LTM 258.3 19.0X 20.6x $4,908 $5,322
LQA 324.4 14.6 15.2 4,736 4,931
Forward Twelve Months 415.3 9.6 10.2 3,987 4,236
-----------------------
Implied Firm Value $4,544 $4,829
Less: Net Debt and Option Proceeds (135) (135)
-----------------------
Equity Value $4,679 $4,964
Shares Outstanding 108.5 108.5
-----------------------
Price Per Share $43.12 $45.75
- ----------------------------------------------------------------------------------------------------------------
(a) Firm Value / Revenue multiples based on NEXTLINK's acquisition of Concentric
and McLeodUSA's acquisition of Splitrock.
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PROJECT NORTHFACE
APPENDIX
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PROJECT NORTHFACE
A. Weighted Average Cost of Capital
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PROJECT NORTHFACE
Weighted Average Cost of Capital for Vail
=======================================================================
Low High
---------------------
Cost of Equity
- -----------------------------------------------------------------------
U.S. Risk Free Rate (10 Year U.S. Treasury) 6.51% 6.51%
Equity Market Risk Premium (b) 5.50% 7.50%
Median Industry Equity Beta (c) 2.02 2.02
- -----------------------------------------------------------------------
Adjusted Equity Market Risk Premium 11.09% 15.13%
Cost of Equity 17.60% 21.63%
Cost of Debt
- -----------------------------------------------------------------------
U.S. Risk Free Rate (10 Year U.S. Treasury) (a) 6.51% 6.51%
Credit Spread 5.49% 5.49%
- -----------------------------------------------------------------------
Cost of Debt (Pretax) 12.00% 12.00%
Effective Marginal Tax Rate 38.00% 38.00%
- -----------------------------------------------------------------------
Cost of Debt (Aftertax) 7.44% 7.44%
Debt/Capitalization (Target) 30.00% 20.00%
WACC 14.55% 18.80%
- -----------------------------------------------------------------------
========================================================
Comparable Companies Equity Beta (d)
- --------------------------------------------------------
AppliedTheory Corp. (ATHY) 1.85
Data Return Corp (DRTN) 1.08
Digex Inc (DIGX) 2.08
Equant N V (ENT) 0.75
Exodus Communications Inc (EXDS) 2.09
Internet Initiative Japan Inc (IIJI) 1.96
Navisite Inc (NAVI) 2.11
PSInet Inc (PSIX) 2.08
- --------------------------------------------------------
Median Industry Equity Beta 2.02
- --------------------------------------------------------
- ----------------
Source: Salomon Smith Barney Financial Strategies Group.
(a) As of May 5, 2000.
(b) Equity market risk premium of 5.5% - 7.5%.
(c) Median equity beta for the Access and Web Hosting Industry.
(d) Source: Barra, March 31, 2000.
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PROJECT NORTHFACE
B. Precedent Transactions and Premiums Analysis
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PROJECT NORTHFACE
Precedent Transactions
(Dollars in Millions)
Firm Value/Revenues Premium to Prior
Date Value of ----------------------------- ------------------------
Announced Target Name Acquiror Name Transaction LTM LQA Fwd 12-Mos 1 Day 1 Week 1 Month
===============================================================================================================================
02/22/00 IXnet Global Crossing $3,606 49.Ox 39.Ox 32.3x 18.1% 22.8% 34.7%
01/10/00 Concentric Network NEXTLINK 2,793 19.0 15.2 10.2 50.0 46.0 82.7
01/07/00 Splitrock Services McLeodUSA 1,849 20.6 14.6 9.6 33.8 53.0 34.2
06/23/99 AboveNet Communications Metromedia Fiber 1,683 174.2 109.3 35.9 35.9 66.5 47.7
07/16/98 InternetMCI Cable & Wireless 1,750 5.8 4.7 3.8 NA NA NA
======================================================================
Median 20.6x 15.2x 10.2x 34.9% 49.5% 41.2%
Mean 53.7 36.6 18.4 34.5 47.1 49.8
======================================================================
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PROJECT NORTHFACE
Historical M&A Premiums
- -----------------------------------------------------------------
Premium Offered
---------------------- Number of
Year Average Median Deals
- -----------------------------------------------------------------
1999 43.3% 34.6% 723
1998 40.7 30.1 512
1997 35.7 27.5 487
1996 36.6 27.3 381
1995 44.7 29.2 324
3 Years ('97-'99) 40.4 31.3 1,722
5 Years ('95-'99) 40.4 30.4 2,427
- -----------------------------------------------------------------
- --------------
Source: Mergerstat (12/31/99).
Note: Premium calculations based on the target's closing market price five
trading days prior to announcement. Three- and five-year data
calculated based on yearly data weighted by the number of deals in
each respective year.
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PROJECT NORTHFACE
C. Vail Comparable Company Analysis
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PROJECT NORTHFACE
Web Hosting and Business Access Comparables
52 Week Firm Value (b) /Revenues
($ in Millions, Except Stock Stock --------------- Equity Firm ---------------------------------------
Price & FV/ Subs) Price (a) Lo Hi Value Value (b) LQA 1999 2000E 2001E
- --------------------------------------------------------------------------------------------------------------------------------
Web Hosting
Data Return (DRTN) $29.25 $15.06 $ 89.63 $ 1,208 $ 1,122 82.2x 165.Ox 40.6x 15.3x
Digex Inc. (DIGX) 77.38 15.50 171.50 5,440 5,115 45.7 85.6 34.1 17.9
Exodus Communications (EXDS) 85.75 17.55 173.31 22,216 22,049 41.1 91.1 28.1 13.7
Navisite (NAVI) 41.00 17.31 159.16 2,471 2,433 66.3 125.5 36.2 15.2
- --------------------------------------------------------------------------------------------------------------------------------
Median -- -- -- -- -- 56.Ox 108.3 35.1x 15.3x
Mean -- -- -- -- -- 58.8 116.8 34.7 15.5
- --------------------------------------------------------------------------------------------------------------------------------
Business Access
AppliedTheory Corp. (ATHY) $11.81 $ 8.75 $ 35.88 $ 304 $ 260 4.1 x 7.5x 4.7x 2.4x
EQUANT N.V. (ENT) 80.25 70.00 126.56 16,222 16,055 12.3 15.3 10.6 7.9
Internet Initiative Japan (IIJI) 59.94 28.50 129.13 2,695 2,624 11.9 12.2 11.3 9.2
PSINet Inc. (PSIX) 22.50 16.00 59.81 3,919 5,839 7.9 10.5 5.3 3.3
VIA NET.WORKS (VNWI) 21.00 13.75 71.75 1,188 888 11.1 22.6 9.7 5.5
- --------------------------------------------------------------------------------------------------------------------------------
Median -- -- -- -- -- 11.1x 12.2x 9.7x 5.5x
Mean -- -- -- -- -- 9.4 13.6 8.3 5.7
- --------------------------------------------------------------------------------------------------------------------------------
VAIL $35.94 $23.69 $80.00 $3,305 $3,856 11.9X 14.9x 9.3x 5.5x
- --------------------------------------------------------------------------------------------------------------------------------
Note: Operating Estimates from Wall Street Research.
(a) Stock Price as of May 5, 2000.
(b) Firm Value equals equity value (all fully diluted shares at the stock
price less any option proceeds) plus straight debt, minority interest,
straight preferred stock, all out-of-the-money convertibles, less
investments in unconsolidated affiliates and cash.
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