In March, Time Warner Telecom (TWTC) said it launched a convertible debt offering of $200 million in senior notes due 2026, with an option for the underwriters the option to purchase up to $30 million more of the bonds to cover possible over-allotments. If you check your charts TWTC fell 5% to $14.11 in mid-day trading down from the previous day high of around $16.00. Within 5 trading days the stock rebounded from $14.11 to $18.73 or 32.7%.
The other day, out of nowhere, Netflix a debt free company announced that it was raising $100 million in a stock offering at $30.00. After the news, the stock fell to the $29.60 level and today shot up over $2.00 to $32.18 or 8.7% from the drop. Tomorrow it should continue its run.
We would expect the same activity from Broadwing in the next few days once we pass the initial shock of the company offering convertible debentures.
Given all that we know, Broadwing must be setting themselves up for a very juicy acquisition to continue to make the company more EBITDA profitable by reducing internal costs. Assuming a 50/50 cash to equity ratio, Broadwing's $300 million in liquidity post-deal would give them up to $600 million in acquisition buying power. So, looking at a best case scenario their leverage = $600 million in acquisition Enterprise Value (EV), 3.0x post-synergy EBITDA for the takeout. Theoretically, Broadwing's '07 EV/EBITDA multiple could fall from the current state of around 20.0x to a low of 6.0x. This would be very bullish. Stay tuned for more updates.
