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Medium Merger & Acquisition Attrition

Telco Talks

#Telecommunications
ProHub Comment

This case tests a candidate's ability to build a financial model for M&A valuation using perpetuity calculations and synergy analysis. The key challenge is recognizing that the per-customer profitability initially declines with acquisition, but becomes accretive only with realistic cost synergies. Strong candidates must also identify critical risks around customer attrition and assumption sensitivity.

Estimated Time 26 minutes
Difficulty Medium
Source Chicago Booth
28 / 100
Our client is a large telecom company that operates in the Midwestern region. They focus on providing 3 primary services: phone, TV, and internet. They have already taken several cost cutting initiatives, and now are currently exploring new growth opportunities. They’ve been approached by another telecom company (WIT Co) to purchase WIT Co’s assets and customer base, which would transform our client from a regional player to a national player. Our client therefore has asked us whether or not they should proceed with purchasing WIT Co’s assets.

Clarifying Information

  1. Company Goal is to grow while maintaining margins on customer basis.
  2. Background: assets are concentrated in 3 states – CA, NY, FL.
  3. Customers – Are both residential and business.
  4. Current Client – Revenue of $8.5B
  5. Current Client – Costs of $7.5B
  6. Current Client – 5M customers
  7. WIT Co (acquisition target) – Revenue of $5B
  8. WIT Co (acquisition target) – Costs of $4.55B
  9. WIT Co (acquisition target) – 3.6M customers
Mock Interview
Interviewer

Our client is a large telecom company that operates in the Midwestern region. They focus on providing 3 primary services: phone, TV, and internet. They have already taken several cost cutting initiatives, and now are currently exploring new growth opportunities. They've been approached by another telecom company (WIT Co) to purchase WIT Co's assets and customer base, which would transform our client from a regional player to a national player. Our client therefore has asked us whether or not they should proceed with purchasing WIT Co's assets.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
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Practice this case with AI Mock Interview

A regional telecom company considers acquiring a competitor to expand nationally. The case requires calculating combined profitability, determining acquisition price using perpetuity valuation, and assessing acquisition benefits against risks like customer churn and integration challenges.

Key Insights:

  1. Per-customer profitability analysis is critical in telecom; combined company initially shows lower profit/customer ($169/cust) than current client ($200/cust), requiring cost synergies to justify deal
  2. Perpetuity valuation with discount rate adjustment: $950M additional profit / 10% (12% discount - 2% growth) = $9.5B maximum acquisition price
  3. Key risk is assumption sensitivity—attrition, market growth rate, and synergy realization significantly impact valuation; good candidates anticipate these sensitivities
  4. Post-merger integration and customer retention are critical success factors; cultural fit and service continuity drive whether synergies materialize