#$%$ mgmt. is gone, and so is the dividend now which is a good thing. With the cutting of the dividend earlier this year, and then the outright elimination of it in early November the company has simply done away with a liability that it was not getting any credit for anyway. The dividend made the company uninvestible as it was putting the company in a precarious balance sheet position.
Even without the dividend commitment the company was very iffy and risky.
Enter Wireless JV with GNCMA to combat the impending entrance of VZW.
They contribute wireless assets and continue to market under their respective brands. ALSK owns 1/3, GNCMA owns 2/3.
However the schedule of cash flows for the JV changes the game a bit.
Upon consummation of the JV, expected bw 1Q/2Q, ALSK receives $100mm in cash day 1. Over the next 4 years ALSK receives a preferred payment of $50mm, $50mm, $45mm, $45mm. In years 5+ ALSK receives it 1/3 share of the CF which is about $20mm/yr at current levels.
ALSK needed an amendment to its credit agreement to do this JV. The lending group in turn required a large portion of these preferred distributions to be applied to debt repayment. For instance, of the $100mm upfront payment, $70mm must immediately go to debt repayment. In other words, the credit group is making these cash flows to ALSK #$%$ proof.
3Q 2012 net debt - $538mm. 4Q 2013E net debt - $385mm. 4Q 2014E Net debt - $320mm. Just created a bunch of equity value ~ more than $200mm actually, or 3x the current mkt cap.
Company’s interest rate is also based on a grid with lower rates obviously based on lower leverage. Becomes a very virtuous cycle of lower leverage and growing levered FCF. No cash taxes in sight.
Fundamentally, 25-30% of the company’s revs are voice or CETC and are declining, however the company continues to post gains in Biz/Consumer broadband and foreign roaming.
It’s #$%$ fundamentals are priced in. Carving out the Wireless assets, the company trades about 3.75x 2013E Wireline EBITDA, similar to SURW when it was kicked out the Russell Index. But even if the fundamentals remain #$%$, you can make money in the equity as the company delevers.
Technically speaking, not a hugely shorted stock anymore. I simply don’t think there’s anyone around to sell the stock frankly. I mean anyone who rode this from $17 to $1.79 in 2 years is gone. 1.5 million shares traded (300k avg) on the div cut on 11/2. 2 weeks later 1.5mm shares traded at 1.95 and the stock broke to the upside which tells me somebody has an interest here. Tax loss selling into Dec. I could see a Jan pop in a vacuum.
Various quants are involved. It may even attract $ from the Inupiat and Inuit tribes that have been invested in GNCMA. Best case scenario PE comes in for a dividend recap like Qwest Dex and leaves the company for dead afterwards.
Using a 5% perpetual decline in cash flow and 10% WACC I think this thing is worth $4. But if it gets to $4, the company would be in great shape, issue shares to delever like Qwest in 2005 and run for a couple more bucks. So I could see a situation where the stock hits $6.
Are you speculating about another dividend cut or elimination? I do not remember seeing that in print, so if I am wrong please correct me. The idea of a telco not paying anything is unheard of. The cut made last year was to bring the dividend in line with the industry and what it could afford to pay. It is so small now, that I doubt there would be a problem unless of a major collapse.
Enjoyed your analysis. Refreshing in light of the off topic BS that is sometimes posted. When I first started following (and buying) ALSK, I did so as I felt it would be a potential takeover target for Verizon. Do you feel it is a possible outcome as they deleverage below 250m? (2015) Also, what is the dollar value of each residential, business subscriber? (Wireless and wired) This would provide some additional insight. Also, I sometimes ask the question of people who have taken a position (buy or sell) to argue the converse. This often tests the logic. Could you state the negative argument against ALSK? Thank you, again.