Would you mind taking a look at the following, based on some further assumptions:
SWT: Customer base = 15,000 (ASX-R 120304) ARPU = $194PM (Grant62, HC 200304, SWT thread) Attrition in revenue value = 15% (CY04 average, to 120305), but no loss of margin Future focus = 0 net additions, and 0 churn DSL margins = 25% (current est), but averaging 20% throughout CY04, to 120305
PTL: Customer base = 10,000 (ASX-R 120304) ARPU = $315PM (Grant62, HC 200304, SWT thread) Attrition in revenue value = 10% (CY04 average, to 120305), but no loss of margin Future focus = 0 net additions, and 0 churn Aggregated voice and data margins (all inclusive) = 15% (current est), but averaging 12.5% throughout CY04, to 120305
Using the MQE estimates brings the relative contributions of PTL and SWT closer together. Whilst the proposed merger mix is 35:65 in PTL's favour, the MQE estimates suggest that this mix should be re-calibrated to 38:62, whilst my earlier estimates suggest that the mix should be 57:43.
It is likely, therefore, that the 35:65 mix is at the highest end of the valuation mix meaning that PTL must maintain its $550PM ARPU (MQE est) and a 15% margin on its bundled solution (very high, even by my own estimates) in order to justify ending up with 65% of the merged business.
Even at the valuation midpoint, being: SWT ARPU = ($140 + $194)/2 = $166; AND PTL ARPU = ($315 + $550)/2 = $432.50, .... the valuation equation favours SWT, as the following demonstrates: SWT REV = $29.9M SWT MG = 20% = $6.0M SWT PROPORTION = 53% PTL REV = $43.25M PTL MG = 12.5% = $5.4M PTL PROPORTION = 47%.
In other words, the dilutionary impact to SWT should be a lot less than a residual 35% interest in the merged entity. More likely, it should be a 50:50 split, or at worst a 45:55 split in PTL's favour.
The more that one looks at this, the murkier that it gets, and the more dilutionary to existing SWT shareholders, it becomes (arguably, by a factor of 25-30%).
