High-yield/macroeconomics (fka YIELD)

[Democritus_of_Abdera]

Abreis, regarding IWA...

Today’s presentation by IWA management at the Lehman Brothers Worldwide Wireless and Wireline Conference reiterated IWA’s strengths. It is available at http://cc.talkpoint.com/LEHM002/052808a_jw/default.asp?entity=lowa for 90 days.

I didn’t see anything new in the presentation per se. However, the slide set is good and can be downloaded; the question and answer session was interesting, even though it only lasted about five minutes. There were two question strings, one asking why Mediacom has not been a serious competitive threat and the other related to mergers and acquisitions (I have appended a transcript of this latter string below).

The M&A discussion builds upon current conjectures regarding consolidation in the rural telecom arena (see http://telephonyonline.com/mag/telecom_rlec_ma_next/ ).

On a related note, there seems to be an extraordinary interest in Dec 20 calls. The open interest for this strike is 2,173 contracts; whereas, the summed open interest for all call strikes in Jun is about 1,300, for Jul about 100, and for Sept about 1200 (see http://finance.yahoo.com/q/op?s=IWA&m=2008-12 ). It is hard to know what to make of this pattern; however, somebody might be very interested in keeping the price below 20 when December comes.

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My transcript of the Q&A session regarding mergers and acquisitions:

Minute 27:04 - 30:05:

1st Question (the moderator): Let me ask you about consolidation in the space. That clearly is the buzz word these days. You mentioned that you think that you’re safer. And you have definitely kept perhaps much cleaner than maybe some of your peers. Are you open to consolidation in the RLEC space from both being a buyer and/or being a seller? Can you give us your thoughts on that perspective?

Alan Wells, Chairman & CEO: Well first of all, I think that consolidation will happen. It has happened up to now. As you know there have been a lot of transactions over the past several years. I think that there will be more transactions as time goes by. We obviously have been a participant of that because we have made some acquisitions in the state of Iowa. And the Bishop transaction has been outside the state. And the transactions will continue. I think we would certainly be a participant in that. Clearly on the side of looking for transactions that make sense to us to acquire. But obviously as a public company, if someone were to make an overture to us at an attractive price, that is something that our Board has to consider. I don’t think you can ever rule that out. But I certainly couldn’t talk to you about that today even if we had a transaction underway.

2nd questioner (from the audience): I mean how would that happen. I understand M&A and the dynamics within. I guess I’m wondering from your standpoint how accretive can a transaction be when your peers trade at 2-3 multiple points below where you stand right now. Can you explain to me if it is possible for them to acquire you and still be accretive. Because that is one thing that I tried to understand from Embarq and I couldn’t get that. Meaning Embarq trades at 5 times EBITA and you guys are at 8.8 times. There is a big value gap there. I’m wondering with M&A could somepay pay say a modest premium to you and still collect a... I mean what kind of EBITA multiple synergies can you generate from a transaction. That’s what I’m trying to understand with this... the dynamic that we are hearing about the dynamic M&A. I think that you guys are a very likely buyer because you’re positioned brilliantly now because you have such a great multiple. But I’m wondering from a seller’s standpoint what multiple would the buyer have to be at such that it could pay for you and it be accretive. You know what I am saying. It’s a strange question, I understand, but I’m just trying to understand the dynamics.

Alan Wells: I am not sure that I can talk about how somebody would look at us if someone were going to buy us. But like any other M&A transaction you need to look at what the free cash flow accretion would be. There would be a lot of factors to consider. You would have to look at what the incremental borrowing costs would be. You would have to look also at what the synergies would be as part of the transaction. Much like we would look at a transaction if we were the acquirer. But I think that it would be safe to say that there are probably accretive transactions that could be had either by us or somebody else or by somebody else of us throughout the space, even though the multiples may be different and I would think that probably Tom and others who look at that sort of thing more closely could answer this more ...