It took less than two weeks for Leap Wireless
The letter contains the token "not in the best interest of our shareholders" statement, but the language quickly grew harsher when Hutcheson termed MetroPCS's offer as "completely inadequate in a number of critical areas." After outlining several flaws in the proposal, he ultimately stated that Leap's projected 34.5% stake of the combined entity "dramatically undervalues our contributions."
MetroPCS responded with its own pointed letter. The company reiterated that it believes the offer was full and fair and said Leap's management has maintained "highly unrealistic valuation expectations."
The letters make it obvious that the CEOs of both companies believe their shares are undervalued while the other company's shares are artificially inflated. While Leap questioned MetroPCS's capability to deliver on performance promises, MetroPCS claimed that Leap's shares have been propped up by expectations surrounding the merger.
Since the two companies are not even close to agreeing on Leap's value, Wall Street analysts have taken to one method of measuring value in a company -- comparing the purchase price with next year's estimated earnings before interest, taxes, depreciation, and amortization (EBITDA) of the target company.
Jefferies analyst Romeo Reyes says MetroPCS's offer is lower than typical, at about 8.5 times Leap's projected EBITDA. Stanford Group analyst Michael Nelson estimates that Verizon Wireless, which is a joint venture between Verizon Communications
But with a lot more complexity involved in a merger, a simple ratio doesn't tell the whole story. It also leaves plenty of wiggle room for companies and their advisors to argue for a higher price. And these public communications suggest that there's a long way to go before these two companies agree on much of anything.
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