Since the firmhad debtoutstanding with a face value of
$7,647million,theequityinvestorswouldreceivenothingin
theeventofadistresssale,evenifweconsideredthecashand
marketablesecuritiesof$2,260millionthatthefirmhadon
its books.
ILLUSTRATION 17.3: Valuing Global Crossing with
Distress Valued Separately
TovalueGlobalCrossingwithdistressvaluedseparately,we
beganwithagoingconcernvaluationofGlobalCrossingand
then considered the distress sale proceeds.
Valuing Global Crossing as a Going Concern
GlobalCrossingprovidedmanaged dataandvoiceproducts
over a fiber-opticnetwork. Over its three-yearhistory, the
firmhad increased revenuesfrom$420 millionin 1998 to
$3,804millionin 2001,but ithadgone from anoperating
incomeof$120millionin 1998 toanoperatinglossof$1,895
million in 2001.
17 In addition, thefirmwascapitalintensive and reported
substantial capital expenditures ($4,289 million) and
depreciation ($1,436 million) in 2000.
Inmakingthevaluation,weassumedthattherewouldbeno
revenue growth in the first year (to reflect a slowing
economy) andthat revenue growthwould be briskfor the
followingfouryearsandthentaperofftoastablegrowthrate
of5%in theterminalphase,thatEBITDAas apercent of
saleswouldmovefromthecurrentlevel(ofabout−10%)toa
industryaverageof30%bytheendofthetenthyear,andthat
capitalexpenditureswouldberatcheteddownover thenext