-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, DdsNrv0GEurrJ795qblKmwUgjBp/71mNedcITwYc2hbHIYbWWi012YAVljLVHywG NaEEn9WlVLU82wGQP3c6hA== 0000005907-95-000053.txt : 199507110000005907-95-000053.hdr.sgml : 19950711 ACCESSION NUMBER: 0000005907-95-000053 CONFORMED SUBMISSION TYPE: PRE13E3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950710 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: LIN BROADCASTING CORP CENTRAL INDEX KEY: 0000059498 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 620673800 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE13E3 SEC ACT: 1934 Act SEC FILE NUMBER: 005-11563 FILM NUMBER: 95552921 BUSINESS ADDRESS: STREET 1: 1150 CONNECTICUT AVENUE NW STREET 2: 4TH FLOOR CITY: WASHINGTON STATE: DC ZIP: 20036 BUSINESS PHONE: 2068281902 MAIL ADDRESS: STREET 1: 1150 CONNECTICUT AVENUE NW STREET 2: 4TH FLOOR CITY: WASHINGTON STATE: DC ZIP: 20036 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: AT&T CORP CENTRAL INDEX KEY: 0000005907 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 134924710 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE13E3 BUSINESS ADDRESS: STREET 1: 32 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2123875400 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN TELEPHONE & TELEGRAPH CO DATE OF NAME CHANGE: 19920703 PRE13E3 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________________________ SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (Pursuant to Section 13(e) of the Securities Exchange Act of 1934) _________________________________________________________ LIN BROADCASTING CORPORATION (Name of Issuer) AT&T CORP. MCCAW CELLULAR COMMUNICATIONS, INC. MMM HOLDINGS, INC. MMM ACQUISITION CORP. LIN BROADCASTING CORPORATION (Name of Persons Filing Statement) Common Stock, $.01 par value 532763-10-9 (Title of Class of Securities) (CUSIP Number of Class of Securities) _________________________________________________________ Marilyn J. Wasser Andrew A. Quartner Tom A. Alberg AT&T Corp. McCaw Cellular LIN Broadcasting 131 Morristown Road Communications, Inc. Corporation Basking Ridge, NJ 07920 1150 Connecticut 5295 Carillon Point (212) 387-5400 Avenue, NW Kirkland, WA 98033 Washington, D.C. 20036 (206) 828-1902 (202) 223-9222 (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications on Behalf of the Persons Filing Statement) _________________________________________________________ Copies to: Steven A. Rosenblum David B. Chapnick Wachtell, Lipton, Rosen & Katz Simpson Thacher & Bartlett 51 West 52nd Street 425 Lexington Avenue New York, NY 10019 New York, NY 10017 (212) 403-1000 (212) 455-2000 This statement is filed in connection with the filing of solicitation materials subject to Regulation 14A under the Securities Exchange Act of 1934. Check the following box if the soliciting materials referred to above are preliminary copies. [X] Calculation of Filing Fee Transaction Valuation Amount of Filing Fee --------------------- -------------------- $3,323,370,309 * $664,674.06 * For purposes of calculation of fee only. This amount assumes the purchase of 25,613,644 shares of Common Stock, par value $.01 per share, of LIN Broadcasting Corporation at $129.75 net in cash per share. The amount of the filing fee calculated in accordance with Regulation 240.0-11 of the Securities Exchange Act of 1934 equals 1/50 of 1% of the value of the shares to be purchased. [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2). Amount Previously Paid: $664,674.06 Form or Registration No.: Schedule 14A Filing Parties: LIN Broadcasting Corporation Date Filed: July 10, 1995 Page 1 of __ Pages Exhibit Index on Page ___ This Rule 13E-3 Transaction Statement (the "Statement") relates to a proposal to approve and adopt an Agreement and Plan of Merger, dated April 28, 1995, as amended and restated June 30, 1995 (the "Merger Agreement"), among LIN Broadcasting Corporation, a Delaware corporation ("LIN"), McCaw Cellular Communications, Inc., a Delaware corporation ("McCaw") and a wholly owned subsidiary of AT&T Corp., a New York corporation ("AT&T"), MMM Holdings, Inc., a Delaware corporation ("Holdings") and a wholly owned subsidiary of McCaw, and MMM Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Holdings, and the merger of Merger Sub into LIN upon the terms and subject to the conditions set forth in the Merger Agreement (the "Merger"). This Statement is intended to satisfy the reporting requirements of Section 13(e) of the Securities Exchange Act of 1934, as amended (the "Act"). A copy of the Merger Agreement is filed by LIN as Appendix A to the proxy statement (the "Proxy Statement") filed as Exhibit (d) to this Statement. The cross reference sheet below is being supplied pursuant to General Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement of the information required to be included in response to the items of this Statement. The information in the Proxy Statement, including all appendices thereto, is hereby expressly incorporated herein by reference and the responses to each item in this Statement are qualified in their entirety by the information contained in the Proxy Statement. CROSS REFERENCE SHEET Item in Schedule 13E-3 Where located in Proxy Statement Item 1(a) "SUMMARY -- AT&T, McCaw, Holdings, Merger Sub and LIN" and "CERTAIN INFORMATION REGARDING AT&T, McCAW, HOLDINGS, MERGER SUB AND LIN -- LIN" Item 1(b) Cover Page of Proxy Statement, "SUMMARY -- Annual Meeting of LIN Stockholders," and "THE ANNUAL MEETING -- Record Date; Shares Entitled to Vote; Vote Required" Item 1(c),(d) "MARKET PRICES OF LIN COMMON SHARES; DIVIDEND HISTORY" Item 1(e) ** Item 1(f) "MARKET PRICES OF LIN COMMON SHARES; DIVIDEND HISTORY" Item 2(a)-(d),(g) Cover Page of Proxy Statement, "SUMMARY -- AT&T, McCaw, Holdings, Merger Sub and LIN," "CERTAIN INFORMATION REGARDING AT&T, McCAW, HOLDINGS, MERGER SUB AND LIN," "ELECTION OF DIRECTORS -- Nominees for Director," "EXECUTIVE OFFICERS" and Appendix E Item 2(e) ** Item 2(f) ** ______________________ * The information requested by this Item is not required to be included in the Proxy Statement. ** The Item is inapplicable or the answer thereto is in the negative. Item 3(a)(1) "CERTAIN INFORMATION REGARDING AT&T, McCAW, HOLDINGS, MERGER SUB AND LIN -- Certain Transactions Among LIN, AT&T and McCaw" and "-- Relationship with LIN Television." Item 3(a)(2) "SPECIAL FACTORS -- Background of the Merger" Item 3(b) "SPECIAL FACTORS -- Background of the Merger" Item 4(a),(b) "SUMMARY -- The Merger," "THE MERGER" and "SPECIAL FACTORS -- Interests of Certain Persons in the Merger; Conflicts of Interest" Item 5(a) ** Item 5(b) ** Item 5(c),(e) "SPECIAL FACTORS -- Certain Effects of the Merger; Operations of LIN After the Merger" Item 5(d) ** Item 5(f),(g) "SPECIAL FACTORS -- Certain Effects of the Merger; Operations of LIN After the Merger" and "CURRENT INFORMATION: DELISTING AND DEREGISTRATION" Item 6(a),(b),(c) "SUMMARY -- The Merger," "FINANCING OF THE MERGER" and "THE MERGER -- Expenses and Fees" Item 6(d) ** Item 7(a)-(c) "SPECIAL FACTORS -- Purpose, Structure and Reasons for the Merger" ______________________ * The information requested by this Item is not required to be included in the Proxy Statement. ** The Item is inapplicable or the answer thereto is in the negative. Item 7(d) "SUMMARY -- The Merger," "SPECIAL FACTORS -- Certain Effects of the Merger; Operations of LIN After the Merger" and "-- Certain Federal Income Tax Consequences" Item 8(a),(b) "SUMMARY -- The Merger" and "SPECIAL FACTORS -- Fairness of the Transaction; Recommendations" Item 8(c) "SUMMARY -- Annual Meeting of LIN Stockholders" and "THE ANNUAL MEETING -- Record Date; Shares Entitled to Vote; Vote Required" Item 8(d) "SUMMARY -- The Merger," "SPECIAL FACTORS -- Background of the Merger," "-- Fairness Opinion of Wasserstein Perella," and "-- Terms of the PMVG" Item 8(e) "SPECIAL FACTORS -- Background of the Merger" and "-- Fairness of the Transaction; Recommendations" Item 8(f) ** Item 9(a),(b),(c) "SUMMARY -- The Merger," "SPECIAL FACTORS -- Background of the Merger," "-- Fairness Opinion of Wasserstein Perella," "-- Private Market Value View of Morgan Stanley," "-- Private Market Value View of Bear Stearns and Lehman Brothers" and "-- Private Market Value Determination of Wasserstein Perella" _______________________________ * The information requested by this Item is not required to be included in the Proxy Statement. ** The Item is inapplicable or the answer thereto is in the negative. Item 10(a) "SPECIAL FACTORS -- Background of the Merger," "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Principal Stockholders," "-- Security Ownership of Management" and Appendix E Item 10(b) ** Item 11 "SUMMARY -- Annual Meeting of LIN Stockholders," "-- The Merger," "THE ANNUAL MEETING -- Record Date; Shares Entitled to Vote; Vote Required," "SPECIAL FACTORS -- Background of the Merger," "-- Terms of the PMVG" and "THE MERGER" Item 12(a) "SUMMARY -- Annual Meeting of LIN Stockholders," "THE ANNUAL MEETING -- Annual Meeting" and "-- Record Date; Shares Entitled to Vote; Vote Required" Item 12(b) "SUMMARY -- The Merger," "THE ANNUAL MEETING -- Annual Meeting" and "SPECIAL FACTORS -- Fairness of the Transaction; Recommendations" Item 13(a) "SUMMARY -- The Merger," "RIGHTS OF DISSENTING STOCKHOLDERS" and Appendix C Item 13(b) ** Item 13(c) ** Item 14(a) "SUMMARY -- LIN Broadcasting Corporation Summary Consolidated Financial Data" Item 14(b) ** _________________________ * The information requested by this Item is not required to be included in the Proxy Statement. ** The Item is inapplicable or the answer thereto is in the negative. Item 15(a),(b) "THE ANNUAL MEETING -- Proxies; Proxy Solicitation" Item 16 Proxy Statement Item 17(a) ** Item 17(b) * Item 17(c)(1) Appendix A Item 17(c)(2) Appendix D Item 17(d) Proxy Statement Item 17(e) Appendix C Item 17(f) ** _________________________ * The information requested by this Item is not required to be included in the Proxy Statement. ** The Item is inapplicable or the answer thereto is in the negative. Item 1. Issuer and Class of Security Subject to the Transaction. (a) The information set forth in "SUMMARY -- AT&T, McCaw, Holdings, Merger Sub and LIN" and "CERTAIN INFORMATION REGARDING AT&T, McCAW, HOLDINGS, MERGER SUB AND LIN -- LIN" in the Proxy Statement is incorporated herein by reference. (b) The information set forth on the Cover Page of the Proxy Statement, in "SUMMARY -- Annual Meeting of LIN Stockholders" and in "THE ANNUAL MEETING -- Record Date; Shares Entitled to Vote; Vote Required" in the Proxy Statement is incorporated herein by reference. (c), (d) The information set forth in "MARKET PRICES OF LIN COMMON SHARES; DIVIDEND HISTORY" in the Proxy Statement is incorporated herein by reference. (e) Not applicable. (f) The information set forth in "MARKET PRICES OF LIN COMMON SHARES; DIVIDEND HISTORY" in the Proxy Statement is incorporated herein by reference. Item 2. Identity and Background. (a)-(d), The information set forth on the Cover Page of (g) Proxy Statement and in "SUMMARY -- AT&T, McCaw, Holdings, Merger Sub and LIN," "CERTAIN INFORMATION REGARDING AT&T, McCAW, HOLDINGS, MERGER SUB AND LIN," "ELECTION OF DIRECTORS -- Nominees for Director," "EXECUTIVE OFFICERS" and Appendix E in the Proxy Statement is incorporated herein by reference. (e) Negative. (f) Negative. Item 3. Past Contacts, Transactions or Negotiations. (a)(1) The information set forth in "CERTAIN INFORMATION REGARDING AT&T, McCAW, HOLDINGS, MERGER SUB AND LIN -- Certain Transactions Among LIN, AT&T and McCaw" and "-- Relationship With LIN Television" in the Proxy Statement is incorporated herein by reference. (a)(2) The information set forth in "SPECIAL FACTORS -- Background of the Merger" in the Proxy Statement is incorporated herein by reference. (b) The information set forth in "SPECIAL FACTORS -- Background of the Merger" in the Proxy Statement is incorporated herein by reference. Item 4. Terms of the Transaction. (a),(b) The information set forth in "SUMMARY -- The Merger," "THE MERGER" and "SPECIAL FACTORS -- Interests of Certain Persons in the Merger; Conflicts of Interest" in the Proxy Statement is incorporated herein by reference Item 5. Plans or Proposals of the Issuer or Affiliate. (a) Not applicable. (b) Not applicable. (c),(e) The information set forth in "SPECIAL FACTORS -- Certain Effects of the Merger; Operations of LIN After the Merger" in the Proxy Statement is incorporated herein by reference. (d) Not applicable. (f),(g) The information set forth in "SPECIAL FACTORS -- Certain Effects of the Merger; Operations of LIN After the Merger" and "CURRENT INFORMATION: DELISTING AND DEREGISTRATION" in the Proxy Statement is incorporated herein by reference. Item 6. Source and Amount of Funds or Other Consideration. (a),(b), The information set forth in "SUMMARY -- The (c) Merger," "FINANCING OF THE MERGER" and "THE MERGER -- Expenses and Fees" in the Proxy Statement is incorporated herein by reference. (d) Not applicable. Item 7. Purpose(s), Alternatives, Reasons and Effects. (a)-(c) The information set forth in "SPECIAL FACTORS -- Purpose, Structure and Reasons for the Merger" in the Proxy Statement is incorporated herein by reference. (d) The information set forth in "SUMMARY -- The Merger," "SPECIAL FACTORS -- Certain Effects of the Merger; Operations of LIN After the Merger" and "-- Certain Federal Income Tax Consequences" in the Proxy Statement is incorporated herein by reference. Item 8. Fairness of the Transaction. (a),(b) The information set forth in "SUMMARY -- The Merger" and "SPECIAL FACTORS -- Fairness of the Transactions; Recommendations" in the Proxy Statement is incorporated herein by reference. (c) The information set forth in "THE ANNUAL MEETING -- Record Date; Shares Entitled to Vote; Vote Required" in the Proxy Statement is incorporated herein by reference. (d) The information set forth in "SPECIAL FACTORS -- Background of the Merger," "-- Fairness Opinion of Wasserstein Perella," and "-- Terms of the PMVG" in the Proxy Statement is incorporated herein by reference. (e) The information set forth in "SPECIAL FACTORS -- Background of the Merger" and "-- Fairness of the Transaction; Recommendations" in the Proxy Statement is incorporated herein by reference. (f) Not Applicable. Item 9. Reports, Opinions, Appraisals and Certain Negotiations. (a),(b), The information set forth in "SUMMARY -- The (c) Merger," "SPECIAL FACTORS -- Background of the Merger," "-- Fairness Opinion of Wasserstein Perella", "-- Private Market Value View of Morgan Stanley," "-- Private Market Value View of Bear Stearns and Lehman Brothers" and "-- Private Market Value Determination of Wasserstein Perella" in the Proxy Statement is incorporated herein by reference. Item 10. Interest in Securities of the Issuer. (a) The information set forth in "SPECIAL FACTORS -- Background of the Merger," "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Principal Stockholders," "-- Security Ownership of Management" and Appendix E in the Proxy Statement is incorporated herein by reference. (b) Not applicable. Item 11. Contracts, Arrangements or Understandings With Respect to the Issuer's Securities. The information set forth in "SUMMARY - Annual Meeting of LIN Stockholders," "-- The Merger," "THE ANNUAL MEETING -- Record Date; Shares Entitled to Vote; Vote required," "SPECIAL FACTORS -- Background of the Merger," "-- Terms of the PMVG" and "THE MERGER" in the Proxy Statement is incorporated herein by reference. Item 12. Present Intention and Recommendations of Certain Persons With Regard to the Transaction. (a) The information set forth in "SUMMARY - Annual Meeting of LIN Stockholders," "THE ANNUAL MEETING -- Annual Meeting" and " -- Record Date; Shares Entitled to Vote; Vote Required" in the Proxy Statement is incorporated herein by reference. (b) The information set forth in "SUMMARY -- The Merger," "THE ANNUAL MEETING -- Annual Meeting" and "SPECIAL FACTORS -- Fairness of the Transaction; Recommendations" in the Proxy Statement is incorporated herein by reference. Item 13. Other Provisions of the Transaction. (a) The information set forth in "SUMMARY -- The Merger," "RIGHTS OF DISSENTING STOCKHOLDERS" and Appendix C in the Proxy Statement is incorporated herein by reference. (b) Not applicable. (c) Not applicable. Item 14. Financial Information. (a) The information set forth in (i) "SUMMARY -- LIN Broadcasting Corporation Summary Consolidated Financial Data" in the Proxy Statement, (ii) LIN's Annual Report on Form 10-K for the year ended December 31, 1994, as amended by Amendment No. 1 thereto on Form 10-K/A, and (iii) LIN's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 is incorporated herein by reference. (b) Not applicable. Item 15. Persons and Assets Employed, Retained or Utilized. (a),(b) The information set forth in "THE ANNUAL MEETING -- Proxies; Proxy Solicitation" in the Proxy Statement is incorporated herein by reference. Item 16. Additional Information. The information set forth in the Proxy Statement is incorporated herein by reference. Item 17. Material to be Filed as Exhibits. (a) Not applicable. (b)(1) Fairness opinion of Wasserstein Perella & Co. (incorporated by reference to Appendix B to the Proxy Statement) (b)(2) Fairness opinion materials prepared by Wasserstein Perella & Co. (b)(3) Materials prepared by Morgan Stanley & Co. Incorporated. (b)(4) Materials prepared by Bear Stearns & Co., Inc. and Lehman Brothers Inc. (b)(5) Materials prepared by Wasserstein Perella & Co. (b)(6) Letter delivered by Bear Stearns & Co., Inc. to the LIN Independent Directors, dated April 28, 1995. (b)(7) Letter delivered by Lehman Brothers Inc. to the LIN Independent Directors, dated April 28, 1995. (c)(1) Agreement and Plan of Merger, dated April 28, 1995, as amended and restated June 30, 1995, among McCaw, Holdings, Merger Sub and LIN (incorporated by reference to Appendix A to the Proxy Statement). (c)(2) The Private Market Value Guarantee, dated December 11, 1989, as amended, between McCaw and LIN (incorporated by reference to Appendix D to the Proxy Statement). (c)(3) Memorandum of Understanding, dated June 22, 1995, with respect to the proposed settlement of litigation. (d) Proxy Statement and related Notice of Annual Meeting, Letter to Stockholders and Proxy (incorporated by reference to the Proxy Statement and related materials filed under a Schedule 14A by LIN on the date hereof). (e) Incorporated by reference to Appendix C to the Proxy Statement. (f) Not applicable. SIGNATURE After due inquiry and to the best of its knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. Date: July 10, 1995 AT&T CORP. By: DENNIS J. CAREY ----------------------------- Dennis J. Carey Vice President Date: July 10, 1995 McCAW CELLULAR COMMUNICATIONS, INC. By: STEVEN W. HOOPER ----------------------------- Steven W. Hooper President Date: July 10, 1995 MMM HOLDINGS, INC. By: STEVEN W. HOOPER ----------------------------- Steven W. Hooper President Date: July 10, 1995 MMM ACQUISITION CORP. By: H. JOHN HOKENSON ----------------------------- H. John Hokenson Vice President Date: July 10, 1995 LIN BROADCASTING CORPORATION By: LEWIS M. CHAKRIN ----------------------------- Lewis M. Chakrin Chairman EXHIBIT INDEX Exhibit No. Page. No. - ---------- -------- (a) Not applicable. (b)(1) Fairness opinion of Wasserstein Perella & Co. (incorporated by reference to Appendix B to the Proxy Statement) (b)(2) Fairness opinion materials prepared by Wasserstein Perella & Co. (b)(3) Materials prepared by Morgan Stanley & Co. Incorporated. (b)(4) Materials prepared by Bear Stearns & Co., Inc. and Lehman Brothers Inc. (b)(5) Materials prepared by Wasserstein Perella & Co. (b)(6) Letter delivered by Bear Stearns & Co., Inc. to the LIN Independent Directors, dated April 28, 1995. (b)(7) Letter delivered by Lehman Brothers Inc. to the LIN Independent Directors, dated April 28, 1995. (c)(1) Agreement and Plan of Merger, dated April 28, 1995, as amended and restated June 30, 1995, among McCaw, Holdings, Merger Sub and LIN (incorporated by reference to Appendix A to the Proxy Statement). (c)(2) The Private Market Value Guarantee, dated December 11, 1989, as amended, between McCaw and LIN (incorporated by reference to Appendix D to the Proxy Statement). (c)(3) Memorandum of Understanding, dated June 22, 1995, with respect to the proposed settlement of litigation. (d) Proxy Statement and related Notice of Annual Meeting, Letter to Stockholders and Proxy (incorporated by reference to the Proxy Statement and related materials filed under a Schedule 14A by LIN on the date hereof). (e) Incorporated by reference to Appendix C to the Proxy Statement. (f) Not applicable. EXHIBIT (b)(2) Fairness opinion materials prepared by Wasserstein Perella & Co. Page 1 CONFIDENTIAL - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LIN BROADCASTING CORPORATION Presentation to the Board of Directors June 30, 1995 WASSERSTEIN PERELLA & CO. Page 2 LIN BROADCASTING - ------------------------------------------------------------------------------- TABLE OF CONTENTS 1. Summary of Background and Selected Considerations 2. Overview of Revised McCaw Offer 3. Public Company Trading Analysis 4. Precedent M&A Transactions Analysis 5. Discounted Cash Flow Analysis WASSERSTEIN PERELLA & CO. - ----------------------------------------------------------------------------- Page 3 LIN BROADCASTING - ------------------------------------------------------------------------------- SUMMARY OF BACKGROUND AND SELECTED CONSIDERATIONS WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 4 LIN BROADCASTING SUMMARY OF BACKGROUND AND SELECTED CONSIDERATIONS - ------------------------------------------------------------------------------- OVERVIEW OF WASSERSTEIN PERELLA'S RECENT INVOLVEMENT REGARDING LIN February 17, 1995 WP&Co. retained by LIN and McCaw as Mutually Designated Appraiser under the Private Market Value Guarantee MARCH 7, 1995 WP&Co. rendered its determination of the Mutually Appraised Amount in its role of Mutually Designated Appraiser pursuant to the Private Market Value Guarantee between McCaw and LIN APRIL 28, 1995 WP&Co. met with the LIN Board of Directors in its capacity as the Mutually Designated Appraiser and reviewed its determination of the Mutually Appraised Amount JUNE 23, 1995 WP&Co. retained by the Board of Directors of LIN to opine on the fairness, from a financial point of view, to the minority shareholders of LIN of the revised McCaw merger proposal JUNE 30, 1995 WP&Co. presentation and opinion regarding the revised McCaw Proposal WASSERSTEIN PERELLA & CO. - ----------------------------------------------------------------------------- Page 5 LIN BROADCASTING SUMMARY OF BACKGROUND AND SELECTED CONSIDERATIONS - ------------------------------------------------------------------------------- OVERVIEW OF VALUATION METHODOLOGIES WP&Co. utilized three valuation methods as part of its analysis: . Public company trading analysis . Precedent M&A transactions analysis . Discounted cash flow analysis WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 6 LIN BROADCASTING SUMMARY OF BACKGROUND AND SELECTED CONSIDERATIONS - ------------------------------------------------------------------------------- GENERAL VALUATION CONSIDERATIONS . Qualitative factors examined in the context of our analysis include (but are in no way limited to) the following: - Wireless communication and demographic trends on the whole and in LIN's markets - LIN's historical financial and operating performance and future prospects in the context of its business strategy, market position and current and prospective competition - LIN's technological, marketing and product strategy (including new services and its entry into the wireless data business) - LIN management projections and McCaw management projections - LIN's size and asset mix - LIN's shared control (with BellSouth) of the LA and Houston markets - Evaluation of the breadth and depth of potential acquisition universe for LIN - Potential public market trading value of LIN as a standalone entity - Wall Street analyst commentary, research and valuation estimates WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 7 LIN BROADCASTING SUMMARY OF BACKGROUND AND SELECTED CONSIDERATIONS - ------------------------------------------------------------------------------- STRUCTURAL VALUATION CONSIDERATIONS . Among the structural factors we took into consideration in our evaluation of LIN were: - McCaw's ownership of a majority voting and economic interest in LIN - McCaw's ability to act as a buyer of the publicly held shares of LIN yet not necessarily as a willing seller of its LIN stake - Regulatory restrictions imposed on AT&T with respect to its ability to receive equity consideration from potential buyers of all or part of LIN - The feasibility of various potential value maximizing transaction structures, including regulatory, legal and tax considerations such as FCC foreign ownership restrictions, "A" side/"B" side antitrust overlaps and corporate level treatment of potential multiple party transactions WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 8 LIN BROADCASTING - ------------------------------------------------------------------------------- OVERVIEW OF REVISED MCCAW OFFER WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 9 LIN BROADCASTING OVERVIEW OF REVISED MCCAW OFFER - ------------------------------------------------------------------------------- SUMMARY OF KEY TERMS Anticipated Closing: September 15, 1995 CONSIDERATION: Form Cash Amount Per Share $129.50 Additional Amount Per Share $0.00 to $0.25(1) Accretion Amount Per Share (2) - ------------------------------ (1) The Additional Amount Per Share is to be $0.25 less the excess per share, if any, over an aggregate $4 million in fees potentially awarded to plaintiff's attorneys in connection with the settlement of certain stockholder lawsuits. (2) The amount, if any, equal to 5.5% per annum on the sum of the Amount Per Share plus the Additional Amount Per Share accruing from but not including September 15, 1995 through, and including the Closing Date. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 10 LIN BROADCASTING OVERVIEW OF REVISED MCCAW OFFER - ------------------------------------------------------------------------------- RATIO ANALYSIS OF OFFER PRICE FOR LIN (IN MILLIONS, EXCEPT PER SHARE AND PER POP VALUES) OFFER PRICE $129.50 No. of Shares Outstanding (1) 53.250 EQUITY VALUE $6,896 Plus: Net Debt (2) $1,586 Less: Option Proceeds (1) ($108) ENTERPRISE VALUE $8,373 Less: Non-Cellular Assets (3) ($131) CELLULAR ENTERPRISE VALUE $8,242 CELLULAR ENTERPRISE VALUE AS A MULTIPLE OF: LTM Cellular EBITDA $396 20.8x LIN MANAGEMENT BASE CASE 1995E Cellular EBITDA $535 15.4x 1996E Cellular EBITDA $674 12.2 1997E Cellular EBITDA $795 10.4 MCCAW PROJECTIONS W/O AT&T SYNERGIES 1995E Cellular EBITDA $518 15.9x 1996E Cellular EBITDA $638 12.9 1997E Cellular EBITDA $722 11.4 VALUE PER POP (12/31/94) 25.72 $320 (1) Based on 51.715 million primary shares outstanding as of 4/30/95 per the 3/31/95 10-Q, 1.535 million estimated in-the-money outstanding options at an estimated average exercise price of $70.64 as of 1/31/95 per SEC filings. Excludes 85,000 options granted to executive officers in 1994 at an exercise price of $133.50 and estimated 63,736 options exercised since 12/31/94. (2) As of 3/31/95 per the 10-Q. (3) $88.379 million based on 9.5x 1995E WOOD-TV and WOTV-TV EBITDA of $9.303 million, and $42.63 million for 1.656 million shares of American Mobile Satellite, based on $25.75 a share as of 6/28/95. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 11 LIN BROADCASTING OVERVIEW OF REVISED MCCAW OFFER - ------------------------------------------------------------------------------
IMPLIED MULTIPLES OF REFERENCE RANGE ---------------------------------------------------------------- Summary Reference Range Per LTM 1995E 1996E LIN Share PER POP EBITDA EBITDA(1) EBITDA(1) --------------------------- ------------- --------------- --------------- -------------- Public Companies Trading Analysis $95 - $110 $249 - $280 16.2x - 18.2x 12.0x - 13.5x 9.5x - 10.7x Comparable Transactions Analysis $120 - $145 $301 - $353 19.5x - 22.9x 14.5x - 17.0x 11.5x - 13.5x Discounted Cash Flow Analysis $110 - $150 $280 - $363 18.2x - 23.6x 13.5x - 17.5x 10.7x - 14.6x Revised McCaw Offer $129.50(2) $320 20.8x 15.4x 12.2x
- ------------------------------------ (1) Implied multiples based on LIN management base case projections. (2) Subject to adjustment. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 12 LIN BROADCASTING PUBLIC COMPANY TRADING ANALYSIS - ------------------------------------------------------------------------------- PUBLIC COMPANY TRADING ANALYSIS - -------------------------------------------------------------------- WASSERSTEIN PERELLA & CO. Page 13 LIN BROADCASTING PUBLIC COMPANY TRADING ANALYSIS - ------------------------------------------------------------------------------- PUBLIC COMPANY TRADING ANALYSIS . Determining relevance in the context of public trading multiples requires qualitative judgments . LIN lacks a precise analogue among publicly traded cellular companies given its predominant major-market presence and its lack of international assets . LIN's trading pattern has been affected by existence of the Private Market Value Guarantee . While the "per-POP" approach to analyzing the cellular industry has become less influential than cash-flow multiples as the business matures, many companies continue to disclose valuations on a per POP basis . The public trading environment has a degree of volatility over time because of such macroeconomic factors as interest rate and equity market fluctuations as well as such microeconomic factors as industry results and growth expectations . The wireless industry in particular has undergone dramatic changes in recent years and faces continued dynamic evolution WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 14 LIN BROADCASTING PUBLIC COMPANY TRADING ANALYSIS - ------------------------------------------------------------------------------- SUMMARY ANALYSIS(1)
Adjusted Market Value as a Multiple of Implied LIN Share Price based on the Multiple of: ----------------------------------------------- ------------------------------------------------ Total LTM LTM 1995E Total LTM LTM 1995E POPS Revenues(2) EBITDA(2) EBITDA POPS Revenues(2) EBITDA(2) EBITDA ------------ ----------- ---------- ------ ------------ ------------ ----------- --------- SELECTED MAJOR MARKET COMPANIES(3) Low $185 6.4x 16.4x 12.7x $64.09 $89.77 $96.63 $102.20 Mean $222 6.9 22.9 15.1 $81.69 $100.01 $144.95 $126.29 High $243 7.5 35.0 17.6 $92.07 $110.42 $234.91 $151.39 SELECTED U.S. BASED CELLULAR COMPANIES(4) Low $109 6.4x 16.4x 12.7x $27.57 $89.77 $96.63 $102.20 Mean $178 7.6 28.4 20.5 $60.64 $111.48 $185.84 $180.50 High $243 9.5 44.8 32.7 $92.07 $147.25 $307.76 $302.97
- ---------------------------- (1) Based on the closing stock price of 6/28/95. (2) Latest twelve months as of 3/31/95. (3) Includes AirTouch, Cellular Communications and Vanguard Cellular. (4) Includes AirTouch, Cellular Communications, Vanguard, Centennial, CommNet Cellular, PriCellular, U.S. Cellular and Palmer Wireless. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 15 LIN BROADCASTING PUBLIC COMPANY TRADING ANALYSIS - ------------------------------------------------------------------------------- TRADING ANALYSIS OF SELECTED CELLULAR COMPANIES ($MM, EXCEPT PER POP VALUES)
Estimated Estimated Adjusted Adjusted Estimated Estimated Adjusted Market Value Market Market Implied of Cellular Operations/ Value of Value of Enterprise ---------------------------------- LTM 1995E Adjusted Non-U.S.and Domestic Domestic Value per LTM LTM 1995E Cellular Cellular Market Market Non-Cellular Cellular Pops Domestic Cellular Cellular Cellular EBITDA EBITDA Value(1) Value(2) Operations Operations (MM) Pop Revenues EBITDA EBITDA per Pop per Pop -------- -------- ---------- ---------- ------- -------- ---------- --------- --------- --------- ------- LIN Broadcasting $6,628 $8,214 $131 $8,083 25.7 $314 8.4x 20.4x 15.1 $15.40 $20.79 (3) AirTouch Comm.(4) 13,620 13,369 5,000 8,369 35.4 236 6.9 16.4 12.7 14.40 18.56 Cellular Comm.(5) 1,825 1,955 0 1,955 8.0 243 6.4 17.1 15.1 14.18 16.09 Vanguard Cellular 980 1,405 20 1,385 7.5 185 7.5 35.0 17.6 5.29 10.53 (6) Low $185 6.4 16.4 12.7 5.29 10.53 Mean $222 6.9 22.9 15.1 11.29 15.06 High $243 7.5 35.0 17.6 14.40 18.56
Note: Figures are for publicly available LTM data available for each company. Estimates from analyst reports. - -------------------------------------------------------- (1) Market values based on 6/28/1995 closing stock price: AirTouch - $27.50; CCI 'A' - $45.50; LIN - $126.50; Vanguard - $23.38; U.S. Cellular- $29.63; CommNet - $28.00; Centennial - $15.88; Pricellular - $8.94; Palmer Wireless - $16.38. (2) Defined as market value plus debt, preferred stock and minority interests less cash and equivalents. (3) Non-cellular assets consist of 1.656 million shares of American Mobile Satellite (equity value of $42.6 million as of 6/28/1995), and television stations at 9.5x 1995E EBITDA of $9.30 million. Equity value includes option spread on 1.535 million stock options outstanding at an average exercise price of $70.64 as of 1/31/95. Operating data based on proportionate ownership. (4) Non-Cellular and Non-U.S. assets consist of international cellular assets and domestic paging operations valued at $5,000 million (5) Operating data based on CCI's proportional ownership interest in cellular operations, not consolidated financials. (6) Vanguard's non-cellular operations are based on 2.5 million share holdings of Geotek Communications, and a $8.13 share price of Geotek as of 6/28/1995. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 16 LIN BROADCASTING PUBLIC COMPANY TRADING ANALYSIS - ------------------------------------------------------------------------------- TRADING ANALYSIS OF SELECTED CELLULAR COMPANIES ($MM, EXCEPT PER POP VALUES)
Estimated Estimated Adjusted Adjusted Estimated Estimated Adjusted Market Value Market Market Implied of Cellular Operations/ Value of Value of Enterprise ---------------------------------- LTM 1995E Adjusted Non-U.S.and Domestic Domestic Value per LTM LTM 1995E Cellular Cellular Market Market Non-Cellular Cellular Pops Domestic Cellular Cellular Cellular EBITDA EBITDA Value(1) Value(2) Operations Operations (MM) Pop Revenues EBITDA EBITDA per Pop per Pop -------- ------- ---------- ---------- ---- --------- -------- -------- -------- -------- -------- LIN Broadcasting $6,628 $8,214 $131 $8,083 25.7 $314 8.4x 20.4x 15.1x $15.40 $20.79 (3) AirTouch Comm. 13,620 13,369 5,000 8,369 35.4 236 6.9 16.4 12.7 14.40 18.56 (4) Cellular Comm. 1,825 1,955 0 1,955 8.0 243 6.4 17.1 15.1 14.18 16.09 (5) Centennial 365 722 3 719 6.5 111 9.5 22.7 16.5 4.90 6.75 Cellular (6) CommNet Cellular 317 558 0 558 3.2 177 7.6 44.8 29.4 3.94 6.01 Pricellular (7) 145 229 0 229 1.8 125 8.3 43.0 32.7 2.91 3.84 U.S. Cellular (8) 2,413 2,759 0 2,759 25.2 109 7.5 28.2 19.4 3.88 5.65 Vanguard Cellular 980 1,405 20 1,385 7.5 185 7.5 35.0 17.6 5.29 10.53 (9) Palmer Wireless 383 568 0 568 2.4 236 6.7 19.9 NA 11.87 NA Low $109 6.4 16.4 12.7 2.91 3.84 Mean $178 7.6 28.4 20.5 7.67 9.63 High $243 9.5 44.8 32.7 14.40 18.56
Note: Figures are for publicly available LTM data available for each company. Estimates from analyst reports. - ---------------------------------------------------------- (1) Market values based on 6/28/1995 closing stock price: AirTouch - $27.50; CCI 'A' - $45.50; LIN - $126.50; Vanguard - $23.38 U.S. Cellular- $29.13; CommNet - $26.50; Centennial - $16.50; Pricellular - $9.00; Palmer Wireless - $16.38. (2) Defined as market value plus debt, preferred stock and minority interests less cash and equivalents. (3) Non-cellular assets consist of 1.656 million shares of American Mobile Satellite (equity value of $42.6 million as of 6/28/1995), and television stations at 9.5x 1995E EBITDA of $9.30 million. Equity value includes option spread on 1.535 million stock options outstanding at an average exercise price of $70.64 as of 1/31/95. Operating data based on proportionate ownership. (4) Non-Cellular assets and Non-U.S. assets consist of international cellular assets and domestic paging operations valued at $5,000 million (5) Operating data based on CCI's proportional ownership interest in cellular operations, not consolidated financials. (6) Operating data based on pro forma adjustments for recent acquisitions. (6) Non-cellular assets consist of a domestic paging business valued at $500 per subscriber, and a domestic SMR radio business also valued at $500 per subscriber. (7) Pricellular financials are pro-forma, giving effect to recent acquisitions from CIS and other pending acquisitions as if the transactions had occurred on January 1, 1994. (8) Operating data based on consolidated information after adding back investment income. (9) Vanguard's non-cellular operations are based on 2.5 million share holdings of Geotek Communications, and a $8.13 share price of Geotek as of 6/28/1995. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 17 LIN BROADCASTING PUBLIC COMPANY TRADING ANALYSIS - ------------------------------------------------------------------------------- INDEXED PRICE HISTORY OF SELECTED COMPANIES (MONTHLY FROM JANUARY 1, 1990 - MAY 31, 1995)
DATE II IV 90 II LIN 100.0 106.0 77.3 60.2 69.1 70.1 62.6 51.2 42.9 41.0 54.7 58.3 61.8 63.0 59.7 64.7 64.2 55.5 BROADCASTING S&P 100.0 100.9 104.1 101.8 111.4 111.0 111.1 100.9 95.2 94.2 99.8 102.3 107.4 114.9 117.3 117.5 122.8 116.7 INDUSTRIALS CELLULAR 100.0 111.3 107.0 90.3 106.2 102.5 87.7 68.5 57.8 56.0 76.2 83.5 75.4 88.0 97.1 104.0 98.0 86.6 COMPOSITE DATE IV 94 II IV 92 LIN 64.2 69.2 69.9 67.8 59.2 67.8 70.6 74.4 70.6 69.2 63.5 60.7 65.9 63.5 69.9 64.0 74.2 72.5 BROADCASTING S&P 122.1 124.3 121.1 122.3 116.8 130.1 128.2 129.7 126.8 130.0 130.0 126.8 131.5 128.7 129.5 129.6 133.6 134.0 INDUSTRIALS CELLULAR 90.8 95.8 100.6 114.4 105.0 106.7 113.0 121.2 116.1 105.3 99.3 90.3 96.4 91.1 93.1 88.5 108.8 109.6 COMPOSITE DATE II IV 93 II LIN 74.2 78.2 79.4 84.4 92.4 94.1 95.0 111.8 109.7 107.6 104.3 104.7 110.0 105.9 101.9 100.2 111.2 113.5 BROADCASTING S&P 134.3 134.5 136.7 133.3 137.5 135.8 133.9 138.5 136.4 141.4 140.9 142.6 147.4 144.4 137.6 138.6 140.5 136.4 INDUSTRIALS CELLULAR 100.1 105.8 111.8 111.1 116.8 117.0 126.3 155.7 151.1 165.2 146.8 157.4 156.1 151.7 139.1 146.8 149.7 145.3 COMPOSITE DATE IV 94 LIN 118.5 127.0 131.9 130.8 136.0 126.5 131.8 122.6 115.4 118.2 117.4 BROADCASTING S&P 141.0 147.4 144.8 148.2 142.5 144.6 146.4 152.1 157.6 161.8 167.1 INDUSTRIALS CELLULAR 158.5 176.2 171.8 186.0 176.4 182.3 169.0 172.1 164.1 161.4 164.5 COMPOSITE
WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 18 LIN BROADCASTING PUBLIC COMPANY TRADING ANALYSIS - ------------------------------------------------------------------------------- INDEXED PRICE HISTORY OF SELECTED COMPANIES (WEEKLY FROM JANUARY 1, 1994 - JUNE 23, 1995)
DATE 1/7/94 3/31 LIN 100.0 98.0 101.0 105.0 105.0 103.5 104.8 101.6 103.0 101.7 100.9 102.3 98.2 96.1 96.1 95.9 96.6 102.3 BROADCASTING S&P 100.0 101.1 101.2 101.5 100.1 100.4 100.3 99.7 99.6 100.1 101.1 98.6 95.3 95.5 94.7 94.9 96.0 95.6 INDUSTRIALS CELLULAR 100.0 100.9 101.1 100.4 98.5 97.1 97.8 97.4 95.7 97.2 93.7 93.8 89.9 91.7 94.8 93.4 94.9 95.0 COMPOSITE DATE 6/24/94 LIN 102.1 105.3 107.8 108.7 109.1 109.1 105.3 110.0 109.6 114.4 114.4 114.2 115.4 116.0 117.8 120.8 122.5 124.4 BROADCASTING S&P 95.0 97.0 97.5 97.9 97.3 97.4 94.2 94.8 95.7 96.7 96.6 97.6 97.3 98.4 99.2 101.7 101.1 100.9 INDUSTRIALS CELLULAR 93.9 96.9 97.1 99.6 99.4 99.6 97.8 95.0 97.0 97.4 99.3 102.4 101.2 104.7 106.0 110.7 112.5 111.7 COMPOSITE DATE 9/16/94 12/9/94 LIN 126.9 127.4 127.1 123.5 124.2 123.5 124.7 126.3 127.9 128.0 127.1 130.1 128.2 129.7 132.6 121.9 120.8 123.1 BROADCASTING S&P 101.8 99.4 100.2 98.6 101.8 101.1 102.9 100.4 100.7 100.9 98.2 98.5 96.9 99.6 100.1 100.1 100.1 101.2 INDUSTRIALS CELLULAR 111.6 111.1 111.1 111.7 115.6 117.5 117.9 115.9 116.8 118.6 112.2 113.2 110.0 111.6 113.9 117.8 115.5 113.1 COMPOSITE DATE 3/3/95 LIN 125.7 126.0 127.1 126.7 118.0 118.3 117.8 111.2 110.7 111.2 111.2 111.6 113.2 112.7 113.9 112.3 112.8 112.7 BROADCASTING S&P 101.0 101.4 103.1 104.0 104.2 105.4 105.1 106.3 107.7 109.1 109.1 109.8 110.6 110.6 112.0 113.0 114.2 113.0 INDUSTRIALS CELLULAR 114.1 111.2 112.1 113.0 112.1 112.1 110.3 109.8 111.6 110.5 106.0 105.5 106.4 104.0 104.3 104.1 105.7 106.5 COMPOSITE DATE 5/26 LIN 113.2 113.0 112.7 113.7 115.5 BROADCASTING S&P 113.8 115.2 114.9 117.6 119.6 INDUSTRIALS CELLULAR 106.1 105.0 106.9 108.8 111.8 COMPOSITE
WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 19 LIN BROADCASTING - ------------------------------------------------------------------------------ PRECEDENT M&A TRANSACTIONS WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 20 LIN BROADCASTING Precedent M&A Transactions - ------------------------------------------------------------------------------- PRECEDENT M&A TRANSACTIONS . Determining relevance in the context of precedent M&A transactions requires qualitative judgments . Although there have been a number of recent cellular transactions, with the exception of the AirTouch/US WEST and Bell Atlantic/NYNEX joint venture transactions, only the AT&T acquisition of McCaw has been of comparable scale . Values paid in going private transactions have historically been affected by the existence of a controlling shareholder . While the "per-POP" approach to analyzing the cellular industry has become less influential than cash-flow multiples as the business matures, many companies continue to disclose valuations on a per POP basis . The M&A transaction environment has a degree of volatility over time because of such macroeconomic factors as interest rate and equity market fluctuations as well as such microeconomic factors as industry results and growth expectations . The wireless industry in particular has undergone dramatic changes in recent years and faces continued dynamic evolution WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 21 LIN BROADCASTING Precedent M&A Transactions - ------------------------------------------------------------------------------- SUMMARY ANALYSIS ($MM - EXCEPT PER SHARE PRICE)
Adjusted Market Values as Multiple of: Implied LIN Price Per Share ---------------------------------------------- --------------------------------------------- PRICE PRICE/LTM 1ST YEAR 2ND YEAR PRICE PRICE/LTM PRICE/1 YR. PRICE/2 YR. BUYER SELLER DATE PER POP EBITDA EBITDA EBITDA PER POP EBITDA EBITDA EBITDA - -------- ---------- ------- -------- --------- -------- -------- ------- --------- ----------- ----------- AT&T/MCCAW AT&T McCaw 8/93 $283 25.3x 20.9x 15.1x $111.32 $162.79 $198.21 $174.43
IMPLIED VALUE OF LIN AS PART OF AT&T'S ACQUISITION OF MCCAW Based 8/93 $125.03(1) $105.77(1)(2) on EBITDA Based on Relative POPs $103.26(1) Based on Relative Subs $120.87(1)
SELECTED GOING PRIVATE TRANSACTIONS GTE Contel 1/95 $191 25.4x 14.1x 9.9x $67.08 $163.54 $125.59 $105.65 Cellular US WEST US WEST 11/90 $148.2 49.7 23.8 14.1 $46.31 $344.19 $229.22 $167.20 New Vector
SELECTED RECENT TRANSACTIONS(3) Low $79 $12.87 Mean $202 $75.52 High $321 $129.77
- -------------------------------------- (1) Excludes TV assets subsequently spun-off at an assumed estimated per share price of $12.00. (2) Based on estimated EBITDA for the year starting approximately 5 months post announcement. (3) Excludes the AT&T/McCaw transaction and selected going private transactions. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 22 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - ------------------------------------------------------------------------------- ANALYSIS OF AT&T'S ACQUISITION OF MCCAW . WP&Co. analyzed AT&T's acquisition of McCaw as follows: - Transaction announcement date of August 13, 1993 - The shares outstanding were obtained from McCaw 10-Q dated 6/30/93 . The options outstanding and estimated strike price were obtained from McCaw 10-K dated 12/31/92 - McCaw net debt was obtained from McCaw 10-Q dated 6/30/93, and excluded the 48% of LIN debt that it did not own - The value of International and non-cellular assets was estimated as follows: . 472,500 estimated pagers at $500 a pager . Approximately 52% of LIN media estimated as follows: - 9.5x LTM as of 6/30/93 EBITDA of LIN's media properties of $69.5 million from McCaw and LIN's public documents . $44.3 million for McCaw and LIN's pro rata ownership interests in American Mobile Satellite based on trading value at 12/13/93 (first day of public trading) . 1.7 million Hong Kong POPs at $10 per POP and 0.92 Mexican cellular POPs at $10 per POP (as of announcement date) - Proportionate cellular cash flow values for McCaw for LTM as of 6/30/93, year-ending 1993 and LTM as of 6/30/94 were obtained from McCaw public documents - Proportionate cellular cash flow estimate for McCaw for 1994 was a mean from selected research reports (Salomon Brothers - 9/94; CS First Boston - 7/94; Wheat First - 8/94) - Proportionate cellular cash flow estimate for McCaw for 1995 was a mean from selected research reports (Salomon Brothers - 9/94; Wheat First - 8/94) WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 23 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - ------------------------------------------------------------------------------ AT&T'S ACQUISITION OF MCCAW - SUMMARY TRANSACTION ANALYSIS (IN THOUSANDS, EXCEPT FOR PER SHARE AND PER POP VALUES) Transaction Announcement (8/13/93) AT&T Share Price (8/13/93) $62.375 McCaw Share Price (8/13/93) $51.250 Premium 21.7% No. of McCaw Shares Outstanding 206,185 (6/30/93) Equity Value $12,860,802 Options Outstanding -(12/31/92) 11,189 Option Spread - Average $474,123 Exercise Price $20.00 Total Equity Value $13,334,925 Net Debt (6/30/93) $4,809,922 Less: 48% of LIN Net ($764,314) Debt(1) Total Net Debt $4,045,608 Total Enterprise Value $17,380,533 Less: Value of Non-Cellular ($649,814) Assets (2) Cellular Enterprise Value $16,730,720 Total Net POPs (3) 59,161 Value per POP $283 Cellular Enterprise Value as a Multiple of (4): LTM OCF (6/30/93) $660,130 25.3x 1993 OCF $730,901 22.9 LTM 6/30/94 OCF $798,605 20.9 1994E OCF $925,800 18.1 1995E OCF $1,283,350 13.0 (1) Excludes $1,238 million of preferred stock exchangeable for LIN's 49.99% interest in Philadelphia, which is assumed to be redeemed. (2) Includes McCaw's estimated 472,500 pagers at $500 a pager, 52% of 9.5x LTM LIN's media properties cash flow of $69.5 million as of 6/30/93, McCaw's direct and indirect interest in American Mobile Satellite (AMSAT) of 8.85% and AMSAT's equity value of $500.2 million as of 12/13/93, license for 1.7 million Hong Kong POPs at $10 a POP, and cellular license in Mexico for $10 a POP and 0.92 million POPs (3) Includes all proportionate POPs, and excludes LIN's Philadelphia POPs. Source: DLJ - Spring 1993. (4) Proportionate cellular OCF values from McCaw 10-K and 10-Q. Excludes Philadelphia (in millions): LTM as of 6/30/93 - $13.9; 1993 - $18.0; LTM as of 6/30/94 - $29.8. Philadelphia estimates from LIN appraisal information, except for OCF of LTM as of 6/30/94, which is based on pro rata CAGR from 1992 to 1993. 1994 and 1995 OCF estimates from research analyst reports. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 24 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - ---------------------------------------------------------------------------- Implied Value of LIN as Part of AT&T's Acquisition of McCaw (Assuming No Difference in Relative Value between McCaw and LIN) (in thousands, except per share and per POP values)
Transaction Announcement (8/13/93) Based on Cellular EBITDA Multiples: LIN Implied Multiples based on Cellular LIN Cellular AT&T-McCaw EBITDA (1) Enterprise Value LTM (6/30/93) 25.3x $317,961 $8,058,600 1993 22.9 $338,749 $7,754,143 1994 18.1 $389,760 $7,043,600 Implied LIN Cellular Enterprise Value $7,043,600 - $8,058,600 Plus: Value of LIN Non-Cellular Assets (2) $694,062 Total LIN Implied Enterprise Value $7,737,663 - $8,752,662 Less: LIN Net Debt (6/30/93) (3) (4) ($1,529,779) Implied LIN Equity Value $6,207,884 - $7,222,883 No. of LIN Shares Outstanding (6/30/93) 51,447 No. of LIN Options Outstanding (12/31/92) 1,263 Fully Diluted LIN Shares 52,710 Implied LIN Value per Share (5) $117.77 - $137.03 LIN Share Price (8/13/93) $102.25 Implied Value as a Premium to Market 15.2% - 34.0% Implied Value per LIN POP (24.4 million $288.22 - $329.76 POPs) LIN Trading Value per POP $254.74 Implied per POP Value Premium to Market 13.1% - 29.4%
(1) Cellular EBITDA values do not include Philadelphia (in millions): LTM as of 6/30/93 - $13.9; 1993 - $18.0; LTM as of 6/30/94 - $29.8. 1995 estimates from appraisal information. (2) Includes media properties at 9.5x LTM cash flow of $69.5 million as of 6/30/93, and equity value in American Mobile Satellite of $33.5 million as of 12/13/93. (3) Excludes $1,238 million of preferred stock exchangeable for LIN's 49.99% interest in Philadelphia, which is assumed to be redeemed. (4) Includes option proceeds from options outstanding at an average exercise price of $49.51. (5) Includes TV assets subsequently spun-off. Estimated range after backing out approximately $12 per share of TV equates to $105.77 - $125.03 per share. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 25 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - ------------------------------------------------------------------------- IMPLIED VALUE OF LIN AS PART OF AT&T'S ACQUISITION OF MCCAW (ASSUMING NO DIFFERENCE IN RELATIVE VALUE BETWEEN MCCAW AND LIN)(CONT'D) (IN THOUSANDS, EXCEPT PER SHARE AND PER POP VALUES)
Transaction Announcement (8/13/93) Based on Contributed POPs: McCaw Proportionate POPs (1) 59,161 LIN Proportionate POPs in McCaw (1) 12,708 McCaw Cellular Enterprise Value $16,730,720 LIN Proportionate Enterprise Value in McCaw $3,593,735 LIN Implied Cellular Enterprise Value $6,911,030 Implied Value per LIN POP $282.80 Plus: Value of LIN Non-Cellular Assets (2) $694,062 LIN Total Implied Enterprise Value $7,605,092 Less: LIN Net Debt (6/30/93) (3) (4) ($1,529,779) Implied LIN Equity Value $6,075,313 LIN Fully Diluted Shares 52,710 Implied LIN Value per Share (5) $115.26 Premium to Market (8/13/93) 12.7%
Based on Contributed Subscribers: McCaw Proportionate Subscribers (6) 1,558,000 LIN Proportionate Subs. in McCaw (6) 379,600 McCaw Cellular Enterprise Value $16,730,720 LIN Proportionate Enterprise Value in McCaw $4,076,368 LIN Implied Cellular Enterprise Value $7,839,169 Implied Value per LIN POP $320.78 Plus: Value of LIN Non-Cellular Assets (2) $694,062 LIN Total Implied Enterprise Value $8,533,231 Less: LIN Net Debt (6/30/93) (3) (4) ($1,529,779) Implied LIN Equity Value $7,003,452 LIN Fully Diluted Shares 52,710 Implied LIN Value per Share (7) $132.87 Premium to Market (8/13/93) 29.9%
(1) Includes all proportionate POPs including McCaw's 52% POPs of LIN, and excludes LIN's Philadelphia POPs. Source: DLJ - Spring 1993 for transaction announcement. (2) Includes media properties at 9.5x LTM cash flow of $69.5 million as of 6/30/93, and equity value in American Mobile Satellite of $33.5 million as of 12/13/93. (3) Excludes $1,238 million of preferred stock exchangeable for LIN's 49.99% interest in Philadelphia, which is assumed to be redeemed. (4) Includes media properties at 9.5x LTM cash flow of $71.5 million as of 6/30/94, and equity value in American Mobile Satellite of $27.1 million as of 9/19/94. (4) Includes option proceeds from options outstanding at an average exercise price of $49.51. (5) Includes TV assets subsequently spun-off. Estimated range after backing out approximately $12 per share of TV equates to $103.26 per share. (6) Subscriber figures from analyst reports. (7) Includes TV assets subsequently spun-off. Estimated range after backing out approximately $12 per share of TV equates to $120.87 per share. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 26 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - ---------------------------------------------------------------------------- Selected Recent Cellular Transactions
Implied LIN Equity Value per Share Price/1st Price/2nd Price/ Price/ Purchase Price/ Year Year Price/ 1st 2nd Date Price Price/ LTM EBITDA EBITDA Price/ LTM Year Year Announced Market(s) Buyer/Bidder Seller/Target ($MM) POP EBITDA Since LTM Since LTM POP EBITDA EBITDA EBITDA - ---------- ---------- ------------- ------------- ----- ---- -------- -------- -------- ------ --------- ------ ------ Sep. 1994 Includes 19.5MM GTE acquired Contel Cellular $457 $191.2 25.4x 14.1x(2)9.9x(2) $67.08 $163.54 $125.49 $105.65 adjusted remaining (1) (2) MSA POPs and 10% stake) 4.4MM adjusted RSA POPs. Feb. 1994 Buffalo, NY SBC Associated $680 $188.9 28.8x 19.9x 15.9x $65.95 $188.81 $187.52 $185.01 (75.0%) Communications Communications (3) (4) (4) (4) Rochester, NY (85.7%) Albany, NY Pittsburgh, PA (35.7%) San Francisco (3.0%) Nov. 1990 35 cities in the US West US West $476 $148.2 49.7x 23.8x 14.1x $46.31 $344.19 $229.22 $161.20 Midwest and (acquired New Vector (5) (6) (6) (6) the Western U.S. remaining including 19% stake) Low $148.2 25.4x 14.1x 9.9x $46.31 $163.54 $125.49 $105.65 Mean $176.1 34.7x 19.3x 13.3x $59.78 $232.67 $181.10 $150.62 High $191.2 49.7x 23.8x 15.9x $67.08 $344.19 $229.22 $185.01
(*) Notes on the following page. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 27 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - ------------------------------------------------------------------------- SELECTED RECENT CELLULAR TRANSACTIONS (CONT'D) NOTES (1) Purchase offer consisted of a cash offer of $25.50 per share for all 9.97MM outstanding Class B shares (10% of outstanding stock). The implied enterprise purchase price (for 100% of the stock) includes 2.02 billion of net debt, as per the 9/30/94 Contel 10-Q. The purchase price shown is 10% of this adjusted total price. (2) LTM EBITDA is as of 9/30/94. 1994 EBITDA is the 12/31/94 actual fiscal EBITDA. 1995E and 1996E EBITDA is based on management projections, as listed in the 1/31/95 Contel Merger Proxy. All EBITDA numbers are multiplied by the proportionate ratio of total to consolidated POPs of 1.43 (source: 1/30/95 Merger Proxy) to derive total cellular EBITDA. EBITDA was also adjusted for minority interest to reflect average 94.1% ownership in consolidated EBITDA. The EBITDA numbers presented represent 10% of total EBITDA. LTM EBITDA calculations are on a proportionate basis. (3) Purchase price includes the assumption of $128MM in liabilities. In connection with the transaction, Associated shareholders received pro-rated shares of a new company to be formed with the non-cellular assets that were not sold to SBC (these include holdings in TCI, Liberty Media, General Communications, Republic Pictures, as well as Mexican cellular (2.1MM POPs) operations.) (4) LTM 12/31/93 historical EBITDA of merged cellular assets ($19.7MM) taken from the 7/29/94 Associated Merger Proxy. Proportional EBITDA based on ratio of total POPs to consolidated POPs of 1.33, and 90.2% average proportionate interest in consolidated cellular EBITDA. 1994 EBITDA assumes a 45% growth rate over 1993. 1995 EBITDA assumes a 25% growth rate over 1994 EBITDA. (5) Reflects U.S. West's acquisition of the remaining 19% of New Vector that it did not own. (6) EBITDA projections are based on the January 3, 1990 Merrill Lynch analyst research report. Represent 19% of total EBITDA. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 28 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - ---------------------------------------------------------------------------- SELECTED ADDITIONAL CELLULAR TRANSACTIONS - PER POP IMPLIED VALUATION
Estimated Date Purchase POPS Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) Pop - ------------ ------------------- ----------------- ------------------- ------------ ------------ ------------ Nov. 94(1) Providence, RI SNET Bell Atlantic/NYNEX $450(2) 2.300(2) $196 New Bedford, MA (Bell Atlantic) Pittsfield, MA (80.0%) 8 other markets in CT, MA (16.1%) (NYNEX) Oct. 1994 Washington Cie Generale(3) SBC Communications(3) $215(4) 0.730 $295 D.C./Baltimore des Eaux (CGE) markets (10% ownership) Jul. 94 Covers 9 to the top U.S. WEST AirTouch $13,250(5) 53.000(5) $250 20 U.S. markets (Joint Venture (Joint Venture - including - owns 30%) owns 70%) Los Angeles, San Francisco Detroit, Atlanta, Seattle, and Denver Jun. 94 Covers 7 of the top Bell Atlantic NYNEX $13,000(5) 55.000(5) $236 20 U.S. markets (Joint Venture (Joint Venture including - owns 62.35%) - owns 37.65%) New York, Boston, Philadelphia, Baltimore and Washington D.C.
**FOOTNOTES** (1) The closing of this transaction is subject to the consummation of the Bell Atlantic/NYNEX cellular joint venture. (2) Purchase price and per POP calculation based on the 11/22/94 SNET 8-K. (3) In a concurrent transaction, SBC communications invested $626MM to gain a 10% stake in CGE's cellular subsidiary in France, SFR, as well as minority ownership positions in other communications businesses controlled by CGE, including mobile data and paging services. (4) Purchase price excludes $32MM of net other investments with CGE made in SBC, as per the 10/11/94 SBC Investor Briefing report. (5) Estimated, based on news articles. - -------------------------------------------------------------------- WASSERSTEIN PERELLA & CO. Page 29 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - --------------------------------------------------------------------------- SELECTED ADDITIONAL CELLULAR TRANSACTIONS - PER POP IMPLIED VALUATION
Estimated Date Purchase POPS Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) Pop - ------------- ------------------- ----------------- -------------------- ------------- ---------- ------------ Nov. 1993 Dallas, TX SBC Communications GTE $120 0.420 $286 (acquired an additional 10% (Dallas Cellular) stake) Aug. 1992 Albany, NY Associated McCaw Cellular $90(1) 0.689(2) $131 Rochester, NY Communications Glens Falls, NY May 1992 Nationwide; Markets Sprint Centel $4,412(3) 16.570 $115-$135 include: New York, NY, Chicago, IL, Houston, TX Oct. 1991 Omaha Lincoln Centel $36(4) 16.570 $214 (50% ownership in JV) Telecommunications Sept. 1991 Wisconsin BellSouth McCaw Cellular $410(5) 2.220(6) $184 Illinois Indiana Sept. 1991 Milwaukee, WI BellSouth Graphic Scanning $310(7) 1.153 $178(8) Indianapolis, IN Terre Haute, IN Bloomington, IN
- -------------------------------------------- (1) Includes assumption of $7.5 million in debt. (2) The parties also formed a joint venture, with McCaw donating its 50% interest in Buffalo and Associated its 6% interest in San Francisco/San Jose. (3) Includes $1,363 billion in net debt. Assuming a value of $1,300 to $1,500 per access line for Centel's 1.599 million access lines and the market value ($102.8 million) of its holdings in Rochester Telephone, Centel's cellular assets have an implied value of $115 to $135 per POP. (4) Purchase price represents $11.9 million in cash and the assumption of a $23.8 million note. (5) Includes an agreement to let McCaw out of a $50 million obligation originally incurred by Graphics Scanning and due to BellSouth. (6) BellSouth acquired 2.5 million POPs from McCaw and gave McCaw its interest in Rochester (280,000 POPs), resulting in a net gain of 2.22 million POPs. (7) Comprised of $168 million in cash and $142 million in Graphic Scanning liabilities assumed by BellSouth. (8) Assumes a value of $18.9 million for Graphic Scanning's 315,000 paging subscribers and $86 million for its UK cellular and paging assets (analyst estimates). WASSERSTEIN PERELLA & CO. - ----------------------------------------------------------------------------- Page 30 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - ---------------------------------------------------------------------------- SELECTED ADDITIONAL CELLULAR TRANSACTIONS - PER POP IMPLIED VALUATION
Estimated Date Purchase POPS Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) Pop - -------------- ------------------- ----------------- ----------------- ---------------- ----------- ------------ Sept. 1991 18 MSAs nationwide, Bell Atlantic Metro Mobile $2,448(1) 11.530 $206 including: Phoenix, AZ Hartford, CT Providence, RI Bridgeport, CT New Haven, CT Charlotte, NC Tucson, AZ Aug. 1991 Wichita, KN Pacific Telesis McCaw Cellular $100 0.619 $162 Topeka, KN Aug. 1991 Ohio, Michigan MSAs Pacific Telesis Cellular $90(2) 0.476 $189 (5% interest) Communications July 1991 Waco, TX McCaw Cellular Crowley Cellular $107 0.609 $176 Daytona Beach, FL June 1991 Philadelphia, PA Comcast Cellular Metromedia $1,110 5.155 $198(3) Long Branch, NJ New Brunswick, NJ May 1991 St. Louis MSA Ameritech CyberTel $512 2.815 $159(4) surrounding RSAs
- -------------------------- (1) Includes liquid petroleum business valued at approximately $70 MM. Purchase price represents equity valued at $1,623 million and the assumption of $825 million in debt. (2) Part of larger transaction, including the formation of a joint venture with 8.86 million POPs. (3) Purchased based on $310 MM in cash, $250MM in cash or Comcast Class A stock and Comcast Cellular participating preferred stock (valued by analysts at $550 MM). Assuming a range of 6.0x- 8.0x EBITDA (estimated by analysts at $12.8 MM) for Guest Informant division and 15% interest in WOTV purchased, the value of Metromedia's cellular assets is $196- $200 per POP. (4) Assumes a value of $37.5 million for 750,000 pagers and $26 million for non-compete agreement and net operating loss (NOL) carry forward. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 31 LIN BROADCASTING PRECEDENT M&A TRANSACTIONS - ---------------------------------------------------------------------------- SELECTED ADDITIONAL CELLULAR TRANSACTIONS - PER POP IMPLIED VALUATION
Estimated Date Purchase POPS Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) Pop - ------------- ------------------- ---------------- -------------------- -------------- ----------- ------------ Mar. 1991 Athens, GA BellSouth GTE Mobilnet $102 0.903 $111 Lexington, KY 3 RSAs around Atlanta Jan. 1991 Minority interests Centel Rochester $35 0.435 $79 in 20 Telephone(1) markets in seven states Jan. 1990 Dallas McCaw Cellular $60(2) 0.22 $276 Communications Dec. 1989 New York McCaw LIN Broadcasting $3,375(3) 25.6 $321 Los Angeles Houston Dallas Philadelphia Oct. 1989 New York LIN Broadcasting Metromedia $1,881 6.8 $275
- ---------------------------- (1) Assuming a range of 8.75x-9.75x EBITD, or $1,800- $2,000 per access line (as estimated by analysts) for the 85,000 Centel access lines transferred to Rochester, less the cash and equity (based on RTC's closing stock price on 4/3/91) given up by Rochester, the value of Rochester's cellular assets being transferred is $60-$99 per POP. (2) McCaw acquired CCI's 5.56% interest in Dallas. (3) McCaw purchased 21.9 million shares (42% of the outstanding stock) of LIN Broadcasting, which increased its interest to 51.9%. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 32 LIN BROADCASTING - ------------------------------------------------------------------------------ DISCOUNTED CASH FLOW ANALYSIS WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 33 LIN BROADCASTING - ------------------------------------------------------------------------------ DCF Discussion . DCF valuation ranges are extremely sensitive to changes in both operating assumptions and valuation parameters given nature of cellular and wireless data industries . In performing DCF analysis, WP&Co. looked at different assumptions regarding weighted average cost of capital and terminal value - High variability regarding appropriate valuation of wireless data segment is not unusual in industries that are in a relatively early stage of development . Valuation parameters were applied to the LIN Management Case and the McCaw Management Case . Solely for comparative purposes, WP&Co. prepared a sensitivity case. The WP&Co. sensitivity case does not purport to be WP&Co.'s projections, but represents a sensitivity analysis using different assumptions for comparative purposes WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 34 LIN BROADCASTING LIN CELLULAR PROPORTIONATE-MCCAW CASE WITHOUTH AT&T SYNERGIES - ------------------------------------------------------------------------------- ASSUMPTIONS COMMON TO LIN MANAGEMENT AND MCCAW MANAGEMENT PROJECTIONS . Continued growth in penetration and revenue over 10-year forecast period . As penetration increases, revenue/subscriber/month declines in both real and nominal terms . Margins continue to hold at high levels . No major replacement capital modeled for out years . Marketing expense per gross addition will rise in 1997 and 1998 when competition is projected to increase (e.g. PCS entry) . Cash flow margin before marketing and direct expense per subscriber per month are very similar throughout period . Churn is expected to decline over the period despite expected increased competition . LIN management has revised its 1995 financial forecasts as per actual quarterly financial results through June 1995 WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 35 LIN BROADCASTING LIN CELLULAR PROPORTIONATE-MCCAW CASE WITHOUT AT&T SYNERGIES - ------------------------------------------------------------------------------- MAJOR AREAS OF DIFFERENCE BETWEEN LIN MANAGEMENT AND MCCAW CASES . McCaw's management attempted to strip out AT&T synergies from LIN Management Base Case in arriving at McCaw Management numbers - LIN Management stated that it did not incorporate meaningful AT&T synergies in its base case . McCaw assumes lower penetration by LIN (14.5% vs. 16.9% in year 2004) . McCaw revenue/subscriber/month is lower in later years of model approximately (approximately $49 vs. approximately $54 in LIN Management Case in year 2004) . McCaw marketing costs per gross addition are higher throughout period but especially so in last five years of period . Wireless data expectations as reflected in the McCaw Case are more modest than in the LIN Management Case (approximately one-half the cash flow in year 2004) - -------------------------------------------------------------------- WASSERSTEIN PERELLA & CO. Page 36 LIN BROADCASTING LIN CELLULAR PROPORTIONATE-MCCAW CASE WITHOUT AT&T SYNERGIES - ------------------------------------------------------------------------------- SUMMARY ANALYSIS OF LIN MANAGEMENT CASE
Discount Implied Price Per LIN Share Based Implied Multiple of EBITDA Rate on an Exit Perpetuity Multiple of: Based on Exit Perpetuity Multiple of: ---------- ------------------------------------------- ------------------------------------------ 5.0% 5.5% 6.0% 5.0% 5.5% 6.0% -------- ------- ------- -------- ------- ------- Cellular 11% $143.75 $155.05 $168.60 10.6x 11.7x 12.9x 12% $116.24 $123.84 $132.71 9.1x 9.9x 10.7x 13% $95.73 $101.89 $107.21 8.6x 9.2x 10.0x 6.0% 8.0% 10.0% 6.0% 8.0% 10.0% -------- -------- -------- -------- ------ ------ Wireless Data 19% $7.78 $8.82 $10.32 4.6x 5.5x 6.9x 20% $6.89 $7.72 $8.88 4.3x 5.1x 6.2x 21% $6.14 $6.81 $7.71 4.0x 4.7x 5.6x 4.0% 5.0% 6.0% 4.0% 5.0% 6.0% ------- ------- ------- ------- ------ ------ LIN-TV 11% $1.44 $1.58 $1.77 8.1x 9.5x 11.6x 12% $1.26 $1.36 $1.44 7.1x 8.2x 9.6x 13% $1.12 $1.19 $1.28 6.3x 7.2x 8.3x Aggregate Price Per Share $152.97 $165.45 $180.69 $124.39 $132.92 $143.03 $102.99 $109.89 $116.20
WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 37 LIN BROADCASTING LIN CELLULAR PROPORTIONATE-MCCAW CASE WITHOUT AT&T SYNERGIES - ------------------------------------------------------------------------------- SUMMARY ANALYSIS MCCAW CASE (WITHOUT AT&T SYNERGIES)
Discount Implied Price Per LIN Share Based Implied Multiple of EBITDA Rate on an Exit Perpetuity Multiple of: Based on Exit Perpetuity Multiple of: --------- ---------------------------------------- -------------------------------------------- 5.0% 5.5% 6.0% 5.0% 5.5% 6.0% ------- ------ ------- ----- ----- ----- Cellular 11% $95.16 $102.85 $112.08 10.4x 11.4x 12.6x 12% $76.25 $81.42 $87.46 8.9x 9.7x 10.5x 13% $62.11 $65.76 $69.93 7.8x 8.4x 9.0x 6.0% 8.0% 10.0% 6.0% 8.0% 10.0% ------- ------ ------- ----- ----- ------ Wireless Data 19% $3.65 $4.15 $4.88 4.5x 5.4x 6.7x 20% $3.11 $3.62 $4.18 4.2x 5.0x 6.1x 21% $2.86 $3.18 $3.62 3.9x 4.6x 5.5x 4.0% 5.0% 6.0% 4.0% 5.0% 6.0% ------ ----- ------ ----- ----- ------ LIN-TV 11% $1.44 $1.58 $1.77 8.1x 9.5x 11.6x 12% $1.26 $1.36 $1.44 7.1x 8.2x 9.6x 13% $1.12 $1.19 $1.28 6.3x 7.2x 8.3x Aggregate Price Per Share $100.25 $108.58 $118.73 $80.62 $86.40 $93.08 $66.09 $70.13 $74.83
WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 38 LIN BROADCASTING LIN CELLULAR PROPORTIONATE-MCCAW CASE WITHOUT AT&T SYNERGIES - ------------------------------------------------------------------------------- SUMMARY ANALYSIS OF SENSITIVITY CASE
Discount Implied Price Per LIN Share Based Implied Multiple of EBITDA Rate on an Exit Perpetuity Multiple of: Based on Exit Perpetuity Multiple of: --------- ------------------------------------------------- ------------------------------------------- 5.0% 5.5% 6.0% 5.0% 5.5% 6.0% ------- ------- ------- ---- ----- ----- Cellular 11% $133.32 $143.91 $156.62 10.4x 11.4x 12.6x 12% $107.51 $114.64 $122.96 8.9x 9.6x 10.5x 13% $88.26 $93.29 $99.03 7.8x 8.4x 9.0x 6.0% 8.0% 10.0% 6.0% 8.0% 10.0% ------- ------- -------- ------ ----- ----- Wireless Data 19% $7.78 $8.82 $10.32 4.6x 5.5x 6.9x 20% $6.89 $7.72 $8.88 4.3x 5.1x 6.2x 21% $6.14 $6.81 $7.71 4.0x 4.7x 5.6x 4.0% 5.0% 6.0% 4.0% 5.0% 6.0% ----- ----- ----- ---- ---- ------ LIN-TV 11% $1.44 $1.58 $1.77 8.1x 9.5x 11.6x 12% $1.26 $1.36 $1.44 7.1x 8.2x 9.6x 13% $1.12 $1.19 $1.28 6.3x 7.2x 8.3x Aggregate Price Per Share $142.54 $154.31 $168.71 $115.66 $123.72 $133.28 $95.52 $101.29 $108.02
WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 39 LIN BROADCASTING WIRELESS DATA - LIN MANAGEMENT CASE - ------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (cont'd) (in thousands, except per POP values)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of 25,722 25,980 26,240 26,502 26,767 27,034 27,304 27,578 27,854 28,133 28,414 POPs % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning 771.302 1,092.076 1,587.399 2,070.865 2,481.767 2,886.521 3,284.306 3,666.878 4,024.885 4,352.573 4,610.246 Subscribers Gross 557.510 744.662 822.650 805.766 855.424 899.623 934.151 947.786 944.519 968.685 881.533 Subscribers Added Deactivations (236.737) (249.339) (339.184) (394.864) (450.669) (501.838) (551.579) (589.779) (616.831) (711.013) (689.666) Annual % Churn (25.41%) (18.61%) (18.54%) (17.35%) (16.79%) (16.26%) (15.87%) (15.34%) (14.73%) (15.87%) (14.65%) Monthly % (2.12%) (1.55%) (1.55%) (1.45%) (1.40%) (1.36%) (1.32%) (1.28%) (1.23%) (1.32%) (1.22%) Churn Net Sub- scribers 320.774 495.322 483.466 410.902 404.754 397.785 382.573 358.007 327.688 257.673 191.867 Added Ending 1,092.076 1,587.399 2,070.865 2,481.767 2,886.521 3,284.306 3,666.878 4,024.885 4,352.573 4,610.246 4,802.113 Subscribers Average 931.689 1,339.737 1,829.132 2,276.316 2,684.144 3,085.413 3,475.592 3,845.882 4,188.729 4,481.410 4,706.180 Subscribers Total 4.25% 6.11% 7.89% 9.36% 10.78% 12.15% 13.43% 14.59% 15.63% 16.39% 16.90% Penetration % Penetration NA 43.9% 29.2% 18.7% 15.2% 12.7% 10.5% 8.7% 7.1% 4.9% 3.1% Growth Annual 1.25% 1.91% 1.84% 1.55% 1.51% 1.47% 1.40% 1.30% 1.18% 0.92% 0.68% Penetration (1) % Growth NA 52.9% (3.4%) (15.9%) (2.5%) (2.7%) (4.8%) (7.3%) (9.4%) (22.1%) (26.3%)
(1) Defined as net subscribers added in a period divided by the population at the end of the period. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 40 LIN BROADCASTING LIN CELLULAR PROPORTIONATE - LIN MANAGEMENT CASE - ------------------------------------------------------------------------ LIN: NOT INCLUDING WIRELESS DATA, INCLUDING LONG DISTANCE, INCLUDING ADDITIONAL PRODUCTS (CONT'D) (IN THOUSANDS, EXCEPT PER POP VALUES)
1994 1995 1996 1997 1998 1999 2000 2001 Income Statement Revenue / Subscriber $82.60 $73.09 $66.84 $62.53 $60.13 $57.29 $55.83 $55.17 / Month % Growth NA (11.5%) (8.6%) (6.4%) (3.8%) (4.7%) (2.6%) (1.2%) Total Revenues $923,546 $1,175,108 $1,467,136 $1,708,154 $1,936,835 $2,121,322 $2,328,346 $2,546,174 % Growth NA 27.2% 24.9% 16.4% 13.4% 9.5% 9.8% 9.4% Direct Operating $279,817 $339,134 $461,244 $559,882 $665,940 $750,474 $858,201 $975,525 Expenses % of Revenues 30.3% 28.9% 31.4% 32.8% 34.4% 35.4% 36.9% 38.3% Cash Flow Before $643,729 $835,974 $1,005,891 $1,148,272 $1,270,895 $1,370,848 $1,470,145 $1,570,650 Marketing Margin 69.7% 71.1% 68.6% 67.2% 65.6% 64.6% 63.1% 61.7% Sales & Marketing $249,855 $291,999 $325,330 $353,397 $366,809 $371,665 $358,705 $333,537 % of Revenues 27.1% 24.8% 22.2% 20.7% 18.9% 17.5% 15.4% 13.1% Sales & Marketing / $448 $392 $395 $439 $429 $413 $384 $352 Gross Addition Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating $529,672 $631,133 $786,574 $913,279 $1,032,748 $1,122,138 $1,216,906 $1,309,061 Expenses Operating Cash Flow $393,873 $543,976 $680,561 $794,875 $904,086 $999,183 $1,111,440 $1,237,113 (OCF) Margin 42.6% 46.3% 46.4% 46.5% 46.7% 47.1% 47.7% 48.6% Depreciation & $128,184 $188,818 $238,986 $260,674 $261,625 $248,446 $227,060 $202,078 Amortization % of Revenues 13.9% 16.1% 16.3% 15.3% 13.5% 11.7% 9.8% 7.9% EBIT $265,689 $355,157 $441,575 $534,201 $642,461 $750,737 $884,380 $1,035,035 Margin 28.8% 30.2% 30.1% 31.3% 33.2% 35.4% 38.0% 40.7% Taxes $97,012 $129,116 $160,463 $194,295 $233,716 $273,434 $322,519 $377,675 Effective Tax Rate 36.5% 36.4% 36.3% 36.4% 36.4% 36.4% 36.5% 36.5% Unlevered Net Income $168,677 $226,042 $281,112 $339,906 $408,745 $477,303 $561,861 $657,360 Net Margin 18.3% 19.2% 19.2% 19.9% 21.1% 22.5% 24.1% 25.8% Free Cash Flow Unlevered Net Income $168,677 $226,042 $281,112 $339,906 $408,745 $477,303 $561,861 $657,360 Depreciation & $128,184 $188,818 $238,986 $260,674 $261,625 $248,446 $227,060 $202,078 Amortization Capital Expenditures ($190,343) ($301,124) ($294,122) ($279,903) ($202,317) ($186,996) ($169,646) ($142,256) Change in Working $0 ($25,156) ($29,203) ($24,102) ($22,868) ($18,449) ($20,702) ($21,783) Capital As a % of Change in NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Revenues Free Cash Flow (FCF) $106,518 $88,580 $196,773 $296,575 $445,186 $520,305 $598,573 $695,400
CONT'D 2002 2003 2004 $54.94 $54.75 $54.15 (0.4%) (0.3%) (1.1%) $2,761,366 $2,944,454 $3,057,837 8.5% 6.6% 3.9% $1,096,295 $1,193,546 $1,261,177 39.7% 40.5% 41.2% $1,665,070 $1,750,908 $1,796,660 60.3% 59.5% 58.8% $295,195 $266,198 $246,266 10.7% 9.0% 8.1% $313 $275 $279 $0 $0 $0 0.0% 0.0% 0.0% $1,391,491 $1,459,744 $1,507,443 $1,369,875 $1,484,710 $1,550,394 49.6% 50.4% 50.7% $175,851 $152,833 $130,473 6.4% 5.2% 4.3% $1,194,024 $1,331,877 $1,419,920 43.2% 45.2% 46.4% $435,945 $486,770 $519,785 36.5% 36.5% 36.6% $758,079 $845,107 $900,136 27.5% 28.7% 29.4% $758,079 $845,107 $900,136 $175,851 $152,833 $130,473 ($130,292) ($102,451) ($76,298) ($21,519) ($18,309) ($11,338) 10.0% 10.0% 10.0% $782,119 $877,181 $942,973
WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 41 LIN BROADCASTING LIN CELLULAR PROPORTIONATE - LIN MANAGEMENT CASE - ---------------------------------------------------------------------------- LIN: NOT INCLUDING WIRELESS DATA, INCLUDING LONG DISTANCE, INCLUDING ADDITIONAL PRODUCTS (CONT'D) (IN THOUSANDS, EXCEPT PER POP VALUES)
Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $2,875,853 $2,875,853 $2,875,853 $2,875,853 $2,875,853 $2,875,853 Terminal Value $5,311,796 $6,256,683 $6,857,974 $7,579,524 $8,461,419 $9,563,787 Enterprise Value $8,187,649 $9,132,536 $9,733,828 $10,455,378 $11,337,272 $12,439,640 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $6,710,038 $7,654,925 $8,256,216 $8,977,766 $9,859,660 $10,962,028 Value per Share (3) $126.01 $143.75 $155.05 $168.60 $185.16 $205.86 Enterprise Value / POP $316.72 $353.27 $376.53 $404.44 $438.56 $481.20 Implied Exit Multiple of EBITDA 9.0x 10.6x 11.7x 12.9x 14.4x 16.3x 12.0% Present Value of Cash Flows $2,733,361 $2,733,361 $2,733,361 $2,733,361 $2,733,361 $2,733,361 Terminal Value $4,276,143 $4,934,011 $5,338,853 $5,811,169 $6,369,360 $7,073,697 Enterprise Value $7,009,504 $7,667,372 $8,072,214 $8,544,530 $9,102,721 $9,807,058 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $5,531,892 $6,189,761 $6,594,602 $7,066,918 $7,625,109 $8,329,446 Value per Share (3) $103.89 $116.24 $123.84 $132.71 $143.19 $156.42 Enterprise Value / POP $271.15 $296.60 $312.26 $330.53 $352.12 $379.37 Implied Exit Multiple of EBITDA 7.9x 9.1x 9.9x 10.7x 11.8x 13.0x 13.0% Present Value of Cash Flows $2,600,362 $2,600,362 $2,600,362 $2,600,362 $2,600,362 $2,600,362 Terminal Value $3,499,647 $3,974,959 $4,260,147 $4,586,076 $4,962,147 $5,429,456 Enterprise Value $6,100,009 $6,575,322 $6,860,509 $7,186,438 $7,562,509 $8,029,818 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $4,622,397 $5,097,710 $5,382,897 $5,708,826 $6,084,898 $6,552,206 Value per Share (3) $86.81 $95.73 $101.09 $107.21 $114.27 $123.05 Enterprise Value / POP $235.97 $254.35 $265.38 $277.99 $292.54 $310.62 Implied Exit Multiple of EBITDA 7.0x 8.0x 8.6x 9.2x 10.0x 10.8x 14.0% Present Value of Cash Flows $2,476,104 $2,476,104 $2,476,104 $2,476,104 $2,476,104 $2,476,104 Terminal Value $2,902,066 $3,255,523 $3,463,439 $3,697,344 $3,962,437 $4,289,584 Enterprise Value $5,378,170 $5,731,627 $5,939,543 $6,173,448 $6,438,541 $6,765,689 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $3,900,559 $4,254,016 $4,461,931 $4,695,837 $4,960,929 $5,288,077 Value per Share (3) $73.25 $79.89 $83.79 $88.18 $93.16 $99.31 Enterprise Value / POP $208.04 $221.72 $229.76 $238.81 $249.06 $261.72 Implied Exit Multiple of EBITDA 6.3x 7.1x 7.5x 8.1x 8.6x 9.3x
(1) Present values as of 9/15/95. Enterprise value per POP based on 6/30/95 estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Based on 3/31/95 net debt of $1,586 million, less option proceeds of $108 million, based on 1,535,338 options outstanding as of 1/1/95 at an average exercise price of $70.64 per LIN mgmt. (3) Based on fully diluted shares including 51,714,736 shares outstanding as of 3/31/95, plus 1,535,338 options outstanding as of 1/1/95 per LIN management. WASSERSTEIN PERELLA & CO. - ----------------------------------------------------------------------------- Page 42 LIN BROADCASTING LIN CELLULAR PROPORTIONATE - LIN MANAGEMENT CASE - ----------------------------------------------------------------------------- LIN: NOT INCLUDING WIRELESS DATA, INCLUDING LONG DISTANCE, INCLUDING ADDITIONAL PRODUCTS (CONT'D) (IN THOUSANDS, EXCEPT PER POP VALUES)
Discount Rate Terminal Exit Multiples of OCF 9.5x 10.0x 10.5x 11.0x 11.5x 11.0% Present Value of Cash Flows $2,875,853 $2,875,853 $2,875,853 $2,875,853 $2,875,853 Terminal Value $5,584,346 $5,878,259 $6,172,172 $6,466,085 $6,759,998 Enterprise Value $8,460,200 $8,754,113 $9,048,026 $9,341,939 $9,635,852 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $6,982,588 $7,276,501 $7,570,414 $7,864,327 $8,158,240 Value per Share (3) $131.13 $136.65 $142.17 $147.69 $153.21 Enterprise Value / POP $325.64 $336.95 $348.27 $359.58 $370.89 Implied Perpetuity Growth 4.3% 4.6% 4.9% 5.2% 5.4% Rate 12.0% Present Value of Cash Flows $2,733,361 $2,733,361 $2,733,361 $2,733,361 $2,733,361 Terminal Value $5,137,776 $5,408,185 $5,678,594 $5,949,003 $6,219,412 Enterprise Value $7,871,137 $8,141,546 $8,411,955 $8,682,364 $8,952,774 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $6,393,525 $6,663,934 $6,934,343 $7,204,753 $7,475,162 Value per Share (3) $120.07 $125.14 $130.22 $135.30 $140.38 Enterprise Value / POP $302.97 $313.38 $323.78 $334.19 $344.60 Implied Perpetuity Growth 5.3% 5.6% 5.9% 6.1% 6.4% Rate 13.0% Present Value of Cash Flows $2,600,362 $2,600,362 $2,600,362 $2,600,362 $2,600,362 Terminal Value $4,730,419 $4,979,389 $5,228,358 $5,477,328 $5,726,297 Enterprise Value $7,330,782 $7,579,751 $7,828,721 $8,077,690 $8,326,659 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $5,853,170 $6,102,139 $6,351,109 $6,600,078 $6,849,048 Value per Share (3) $109.92 $114.59 $119.27 $123.94 $128.62 Enterprise Value / POP $282.17 $291.75 $301.33 $310.92 $320.50 Implied Perpetuity Growth 6.2% 6.5% 6.8% 7.1% 7.3% Rate 14.0% Present Value of Cash Flows $2,476,104 $2,476,104 $2,476,104 $2,476,104 $2,476,104 Terminal Value $4,358,532 $4,587,929 $4,817,325 $5,046,722 $5,276,118 Enterprise Value $6,834,636 $7,064,033 $7,293,429 $7,522,826 $7,752,222 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $5,357,025 $5,586,421 $5,815,817 $6,045,214 $6,274,610 Value per Share (3) $100.60 $104.91 $109.22 $113.52 $117.83 Enterprise Value / POP $263.07 $271.90 $280.73 $289.56 $298.39 Implied Perpetuity Growth 7.1% 7.5% 7.8% 8.0% 8.3% Rate 15.0% Present Value of Cash Flows $2,359,902 $2,359,902 $2,359,902 $2,359,902 $2,359,902 Terminal Value $4,018,754 $4,230,268 $4,441,781 $4,653,294 $4,864,808 Enterprise Value $6,378,657 $6,590,170 $6,801,683 $7,013,197 $7,224,710 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $4,901,045 $5,112,558 $5,324,072 $5,535,585 $5,747,098 Value per Share (3) $92.04 $96.01 $99.98 $103.95 $107.93 Enterprise Value / POP $245.52 $253.66 $261.80 $269.94 $278.09 Implied Perpetuity Growth 8.1% 8.4% 8.7% 9.0% 9.2% Rate
(1) Present values as of 9/15/95. Enterprise value per POP based on 1995 POPs. (2) Based on 3/31/95 net debt of $1,586 million, less option proceeds of $108 million, based on 1,535,338 options outstanding as of 1/1/95 at an average exercise price of $70.64 per public SEC filings. (3) Based on fully diluted shares including 51,714,736 shares outstanding as of 3/31/95, plus 1,535,338 options outstanding as of 1/1/95 per the 10-K. - ----------------------------------------------------------------------- WASSERSTEIN PERELLA & CO. Page 43 LIN BROADCASTING WIRELESS DATA - LIN MANAGEMENT CASE - ------------------------------------------------------------------------------ LIN WIRELESS DATA OPERATING MODEL (IN THOUSANDS)
INCOME STATMENT 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ------------- ------- ------- ------- ------- ------- ------ ------- ------- ------- ------- ------- TOTAL $0 $4,500 $18,000 $47,500 $89,000 $147,000 $213,000 $276,900 $359,970 $467,961 $608,349 REVENUES % Growth NA NM 300.0% 163.9% 87.4% 65.2% 44.9% 30.0% 30.0% 30.0% 30.0% Direct $0 $8,450 $19,230 $31,350 $49,470 $61,790 $76,630 $99,619 $129,505 $168,356 $218,863 Operating Revenues % of Revenues NA 187.8% 106.8% 66.0% 55.6% 42.0% 36.0% 36.0% 36.0% 36.0% 36.0% Cash Flow $0 ($3,950) ($1,230) $16,150 f$39,530 $85,210 $136,370 $177,281 $230,465 $299,605 $389,486 Before Marketing Margin NA (87.8%) (6.8%) 34.0% 44.4% 58.0% 64.0% 64.0% 64.0% 64.0% 64.0% Sales & $0 $5,500 $5,250 $9,500 $15,500 $22,000 $32,000 $41,600 $54,080 $70,304 $91,395 Marketing % of Revenues NA 122.2% 29.2% 20.0% 17.4% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Corporate $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Expenses % of Revenues NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% TOTAL $0 $13,950 $24,480 $40,850 $64,970 $83,790 $108,630 $141,219 $183,585 $238,660 $310,258 OPERATING EXPENSES OPERATING $0 ($9,450) $6,480) $6,650 $24,030 $63,210 $104,370 $135,681 $176,385 $229,301 $298,091 CASH FLOW ("OCF") Margin NA (210.0% (36.0%) 14.0% 27.0% 43.0% 49.0% 49.0% 49.0% 49.0% 49.0% Depreciation $0 $10,600 $11,160 $8,696 $9,197 $10,149 $8,416 $6,666 $6,330 $6,071 $5,524 & Amortization % of Revenues NA 235.6% 62.0% 18.3% 10.3% 6.9% 4.0% 2.4% 1.8% 1.3% 0.9% EBIT $0 ($20,050)($17,640) ($2,046) $14,833 $53,061 $95,954 $129,015 $170,055 $223,230 $292,567 Margin NA (445.6%) (98.0%) (4.3%) 16.7% 36.1% 45.0% 46.6% 47.2% 47.7% 48.1% Taxes $0 ($7,619) ($6,703) ($777) $5,637 $20,163 $36,463 $49,026 $64,621 $84,827 $111,175 Effective Tax 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Rate UNLEVERED NET $0 ($12,431)($10,937) ($1,269) $9,196 $32,898 $59,491 $79,989 $105,434 $138,403 $181,392 INCOME Net Margin NA (276.2%) (60.8%) (2.7%) 10.3% 22.4% 27.9% 28.9% 29.3% 29.6% 29.8% FREE CASH FLOW - -------------- Unlevered Net $0 ($12,431)($10,937) ($1,269) $9,196 $32,898 $59,491 $79,989 $105,434 $138,403 $181,392 Income Depreciation $0 $10,600 $11,160 $8,696 $9,197 $10,149 $8,416 $6,666 $6,330 $6,071 $5,524 & Amortization Capital $0 ($19,000) ($5,000) ($5,000)($10,000)($10,000) ($5,250) ($5,250) ($5,250) ($5,250) ($5,250) Expenditures Change in $0 ($450) ($1,350) ($2,950) ($4,150) ($5,800) ($6,600) ($6,390) ($8,307)($10,799) ($14,039) Working Capital As a % of NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Change in Revenues FREE CASH $0 ($21,281) ($6,127) ($523) $4,243 $27,247 $56,057 $75,015 $98,207 $128,425 $167,627 FLOW ("FCF")
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Discount Rate Perpetuity Growth Rates of Free Cash Flow 6.0% 8.0% 10.0% 12.0% 14.0% 18.0% Present Value of Cash Flows $152,336 $152,336 $152,336 $152,336 $152,336 Terminal Value $318,022 $388,827 $495,035 $672,047 $1,026,072 Enterprise Value $470,358 $541,163 $647,371 $824,383 $1,178,408 Net Debt $0 $0 $0 $0 $0 Equity Value $470,358 $541,163 $647,371 $824,383 $1,178,408 Value per Share $8.83 $10.16 $12.16 $15.48 $22.13 Implied Exit Multiple of EBITDA 5.0x 6.1x 7.7x 10.5x 16.0x 19.0% Present Value of Cash Flows $142,810 $142,810 $142,810 $142,810 $142,810 Terminal Value $271,417 $326,817 $406,840 $532,591 $758,942 Enterprise Value $414,226 $469,627 $549,650 $675,401 $901,752 Net Debt $0 $0 $0 $0 $0 Equity Value $414,226 $469,627 $549,650 $675,401 $901,752 Value per Share $7.78 $8.82 $10.32 $12.68 $16.93 Implied Exit Multiple of EBITDA 4.6x 5.5x 6.9x 9.0x 12.8x 20.0% Present Value of Cash Flows $133,948 $133,948 $133,948 $133,948 $133,948 Terminal Value $233,173 $277,168 $338,760 $431,150 $585,132 Enterprise Value $367,120 $411,115 $472,708 $565,097 $719,079 Net Debt $0 $0 $0 $0 $0 Equity Value $367,120 $411,115 $472,708 $565,097 $719,079 Value per Share $6.89 $7.72 $8.88 $10.61 $13.50 Implied Exit Multiple of EBITDA 4.3x 5.1x 6.2x 7.9x 10.7x 21.0% Present Value of Cash Flows $125,697 $125,697 $125,697 $125,697 $125,697 Terminal Value $201,475 $236,857 $285,106 $354,799 $464,316 Enterprise Value $327,172 $362,554 $410,803 $480,496 $590,013 Net Debt $0 $0 $0 $0 $0 Equity Value $327,172 $362,554 $410,803 $480,496 $590,013 Value per Share $6.14 $6.81 $7.71 $9.02 $11.08 Implied Exit Multiple of EBITDA 4.0x 4.7x 5.6x 7.0x 9.2x
(1) Present values as of 9/15/95. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 45 LIN BROADCASTING LIN TELEVISION STATIONS - LIN MANAGEMENT CASE - ------------------------------------------------------------------------------ LIN TELEVISION STATIONS: WOOD-TV AND WOTV-TV (IN THOUSANDS)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Total Revenues $21,795 $22,909 $24,100 $25,022 $26,320 $26,957 $28,112 $28,794 $30,031 $30,761 $32,068 % Growth NA 5.1% 5.2% 3.8% 5.2% 2.4% 4.3% 2.4% 4.3% 2.4% 4.2% Direct Operating $7,296 $7,128 $7,471 $7,739 $8,113 $8,298 $8,628 $8,825 $9,181 $9,387 $9,720 Expenses % of Revenues 33.5% 31.1% 31.0% 30.9% 30.8% 30.8% 30.7% 30.6% 30.6% 30.5% 30.3% SG&A and Promotion $6,197 $6,478 $6,772 $7,003 $7,324 $7,487 $7,773 $7,945 $8,249 $8,432 $8,807 Expenses % of Revenues 28.4% 28.3% 28.1% 28.0% 27.8% 27.8% 27.7% 27.6% 27.5% 27.4% 27.5% Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating $13,493 $13,606 $14,243 $14,742 $15,437 $15,785 $16,401 $16,770 $17,430 $17,819 $18,527 Expenses Operating Cash Flow $8,302 $9,303 $9,857 $10,280 $10,883 $11,172 $11,711 $12,024 $12,601 $12,942 $13,541 (OCF) Margin 38.1% 40.6% 40.9% 41.1% 41.3% 41.4% 41.7% 41.8% 42.0% 42.1% 42.2% Depreciation & $1,265 $1,599 $1,802 $2,010 $2,221 $2,437 $1,391 $1,282 $1,307 $1,334 $1,356 Amortization % of Revenues 5.8% 7.0% 7.5% 8.0% 8.4% 9.0% 4.9% 4.5% 4.4% 4.3% 4.2% EBIT $7,037 $7,704 $8,055 $8,271 $8,662 $8,736 $10,320 $10,742 $11,294 $11,609 $12,185 Margin 32.3% 33.6% 33.4% 33.1% 32.9% 32.4% 36.7% 37.3% 37.6% 37.7% 38.0% Taxes $2,674 $2,928 $3,061 $3,143 $3,292 $3,319 $3,922 $4,082 $4,292 $4,411 $4,630 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $4,363 $4,776 $4,994 $5,128 $5,371 $5,416 $6,398 $6,660 $7,002 $7,197 $7,555 Net Margin 20.0% 20.8% 20.7% 20.5% 20.4% 20.1% 22.8% 23.1% 23.3% 23.4% 23.6% Free Cash Flow Unlevered Net Income $4,363 $4,776 $4,994 $5,128 $5,371 $5,416 $6,398 $6,660 $7,002 $7,197 $7,555 Depreciation & $1,265 $1,599 $1,802 $2,010 $2,221 $2,437 $1,391 $1,282 $1,307 $1,334 $1,356 Amortization Capital Expenditures ($843) ($2,003) ($1,219) ($1,244) ($1,268) ($1,294) ($1,319) ($1,346) ($1,373) ($1,401) ($1,401) Change in Working $0 ($111) ($119) ($92) ($130) ($64) ($116) ($68) ($124) ($73) ($131) Capital As a % of Change in NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Revenues Free Cash Flow (FCF) $4,785 $4,261 $5,458 $5,801 $6,194 $6,495 $6,355 $6,528 $6,813 $7,057 $7,379
- --------------------------------------------------------------------- WASSERSTEIN PERELLA & CO. Page 46 LIN BROADCASTING LIN TELEVISION STATIONS - LIN MANAGEMENT CASE - ------------------------------------------------------------------------------ LIN TELEVISION STATIONS: WOOD-TV AND WOTV-TV (CONT'D) (IN THOUSANDS, EXCEPT PER SHARE VALUES)
Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $35,081 $35,081 $35,081 $35,081 $35,081 $35,081 Terminal Value $41,565 $48,959 $53,664 $59,311 $66,212 $74,838 Enterprise Value $76,647 $84,040 $88,746 $94,392 $101,293 $109,919 Less: Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $76,647 $84,040 $88,746 $94,392 $101,293 $109,919 Value per Share (3) $1.44 $1.58 $1.67 $1.77 $1.90 $2.06 Implied Exit Multiple of 8.1x 9.5x 10.5x 11.6x 12.9x 14.6x EBITDA 12.0% Present Value of Cash Flows $33,652 $33,652 $33,652 $33,652 $33,652 $33,652 Terminal Value $33,461 $38,609 $41,777 $45,473 $49,841 $55,082 Enterprise Value $67,113 $72,261 $75,429 $79,125 $83,493 $88,735 Less: Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $67,113 $72,261 $75,429 $79,125 $83,493 $88,735 Value per Share (3) $1.26 $1.36 $1.42 $1.49 $1.57 $1.67 Implied Exit Multiple of 7.1x 8.2x 8.8x 9.6x 10.6x 11.7x EBITDA 13.0% Present Value of Cash Flows $32,311 $32,311 $32,311 $32,311 $32,311 $32,311 Terminal Value $27,385 $31,105 $33,336 $35,887 $38,829 $42,263 Enterprise Value $59,696 $63,415 $65,647 $68,197 $71,140 $74,573 Less: Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $59,696 $63,415 $65,647 $68,197 $71,140 $74,573 Value per Share (3) $1.12 $1.19 $1.23 $1.28 $1.34 $1.40 Implied Exit Multiple of 6.3x 7.2x 7.7x 8.3x 8.9x 9.7x EBITDA 14.0% Present Value of Cash Flows $31,051 $31,051 $31,051 $31,051 $31,051 $31,051 Terminal Value $22,709 $25,475 $27,102 $28,932 $31,007 $33,377 Enterprise Value $53,760 $56,525 $58,152 $59,983 $62,057 $64,428 Less: Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $53,760 $56,525 $58,152 $59,983 $62,057 $64,428 Value per Share (3) $1.01 $1.06 $1.09 $1.13 $1.17 $1.21 Implied Exit Multiple of 5.7x 6.4x 6.8x 7.2x 7.7x 8.3x EBITDA
(1) Present values as of 9/15/95. (2) Segment net debt is assumed to be $0, and is consolidated with the parent debt. (3) Based on fully diluted shares including 51,714,736 shares outstanding as of 3/31/95, plus 1,535,338 options outstanding as of 1/1/95 per LIN management. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------- Page 47 LIN BROADCASTING LIN TELEVISION STATIONS - LIN MANAGEMENT CASE - ------------------------------------------------------------------------------ LIN TELEVISION STATIONS: WOOD-TV AND WOTV-TV (CONT'D) (IN THOUSANDS, EXCEPT PER SHARE VALUES)
Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Television Enterprise $76,647 $84,040 $88,746 $94,392 $101,293 $109,919 Value As a Multiple of (1): 1994 Segment EBITDA $8,302 9.2x 10.1x 10.7x 11.4x 12.2x 13.2x 1995E Segment EBITDA $9,303 8.2 9.0 9.5 10.1 10.9 11.8 1996E Segment EBITDA $9,857 7.8 8.5 9.0 9.6 10.3 11.2 Value per Share (2) $1.44 $1.58 $1.67 $1.77 $1.90 $2.06 12.0% Television Enterprise $67,113 $72,261 $75,429 $79,125 $83,493 $88,735 Value As a Multiple of (1): 1994 Segment EBITDA $8,302 8.1x 8.7x 9.1x 9.5x 10.1x 10.7x 1995E Segment EBITDA $9,303 7.2 7.8 8.1 8.5 9.0 9.5 1996E Segment EBITDA $9,857 6.8 7.3 7.7 8.0 8.5 9.0 Value per Share (2) $1.26 $1.36 $1.42 $1.49 $1.57 $1.67 13.0% Television Enterprise $59,696 $63,415 $65,647 $68,197 $71,140 $74,573 Value As a Multiple of (1): 1994 Segment EBITDA $8,302 7.2x 7.6x 7.9x 8.2x 8.6x 9.0x 1995E Segment EBITDA $9,303 6.4 6.8 7.1 7.3 7.6 8.0 1996E Segment EBITDA $9,857 6.1 6.4 6.7 6.9 7.2 7.6 Value per Share (2) $1.12 $1.19 $1.23 $1.28 $1.34 $1.40 14.0% Television Enterprise $53,760 $56,525 $58,152 $59,983 $62,057 $64,428 Value As a Multiple of (1): 1994 Segment EBITDA $8,302 6.5x 6.8x 7.0x 7.2x 7.5x 7.8x 1995E Segment EBITDA $9,303 5.8 6.1 6.3 6.4 6.7 6.9 1996E Segment EBITDA $9,857 5.5 5.7 5.9 6.1 6.3 6.5 Value per Share (2) $1.01 $1.06 $1.09 $1.13 $1.17 $1.21
(1) EBITDA figures based on discounted cash flow analysis. (2) Values per share based on discounted cash flow analysis. - --------------------------------------------------------------------- WASSERSTEIN PERELLA & CO. Page 48 LIN BROADCASTING LIN CELLULAR PROPORTIONATE-MCCAW CASE WITHOUT AT&T SYNERGIES - ------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (in thousands, except per POP values)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of 25,722 25,980 26,240 26,502 26,767 27,034 27,304 27,578 27,854 28,133 28,414 POPs % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning 767.205 1,084.603 1,542.510 1,968.679 2,292.740 2,612.018 2,925.895 3,227.817 3,510.390 3,769.132 3,972.509 Subscribers Gross 543.305 719.061 768.441 707.998 738.034 768.469 790.638 799.337 794.478 770.801 744.273 Subscribers Added Deactivations(221.777) (274.801) (343.355) (384.671) (419.506) (454.870) (487.558) (518.039) (535.439) (568.246) (593.681) Annual % (23.95%) (20.92%) (19.56%) (18.05%) (17.11%) (16.43%) (15.85%) (15.38%) (14.71%) (14.68%) (14.67%) Churn Monthly % (2.00%) (1.74%) (1.63%) (1.50%) (1.43%) (1.37%) (1.32%) (1.28%) (1.23%) (1.22%) (1.22%) Churn Net 321.528 444.260 425.086 323.327 318.528 313.599 303.080 281.298 259.039 202.555 150.592 Subscribers Added Ending Subscribers 1,084.603 1,542.510 1,968.679 2,292.740 2,612.018 2,925.895 3,227.817 3,510.390 3,769.132 3,972.509 4,123.789 Average 925.904 1,313.557 1,755.595 2,130.710 2,452.379 2,768.957 3,076.856 3,369.104 3,639.761 3,870.821 4,048.149 Subscribers Total 4.22% 5.94% 7.50% 8.65% 9.76% 10.82% 11.82% 12.73% 13.53% 14.12% 14.51% Penetration % Penetration NA 40.8% 26.4% 15.3% 12.8% 10.9% 9.2% 7.7% 6.3% 4.4% 2.8% Growth Annual 1.25% 1.71% 1.62% 1.22% 1.19% 1.16% 1.11% 1.02% 0.93% 0.72% 0.53% Penetration (1) % Growth NA 36.8% (5.3%) (24.7%) (2.5%) (2.5%) (4.3%) (8.1%) (8.8%) (22.6%) (26.4%)
(1) Defined as net subscribers added in a period divided by the population at the end of the period. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 49 LIN BROADCASTING LIN CELLULAR PROPORTIONATE-MCCAW CASE WITHOUT AT&T SYNERGIES - ------------------------------------------------------------------------------- LIN: NOT INCLUDING WIRELESS DATA, INCLUDING LONG DISTANCE, INCLUDING ADDITIONAL PRODUCTS (CONT'D) (IN THOUSANDS, EXCEPT PER POP VALUES)
1994 1995 1996 1997 1998 1999 2000 Income Statement Revenue/ Subscriber/ $83.46 $73.56 $65.70 $60.81 $57.42 $54.60 $52.44 Month % Growth NA (11.9%) (10.7%) (7.4%) (5.6%) (4.9%) (3.9%) Total Revenues $927,344 $1,159,472 $1,384,214 $1,554,849 $1,689,892 $1,814,133 $1,936,371 % Growth NA 25.0% 19.4% 12.3% 8.7% 7.4% 6.7% Direct Operating $292,577 $346,573 $431,471 $512,801 $590,145 $659,929 $732,158 Expenses % of Revenues 31.5% 29.9% 31.2% 33.0% 34.9% 36.4% 37.8% Cash Flow Before $634,767 $812,899 $952,743 $1,042,048 $1,099,747 $1,154,204 $1,204,213 Marketing Margin 68.5% 70.1% 68.8% 67.0% 65.1% 63.6% 62.2% Sales & Marketing $235,251 $294,815 $314,292 $320,015 $328,425 $328,136 $320,999 % of Revenues 25.4% 25.4% 22.7% 20.6% 19.4% 18.1% 16.6% Sales & Marketing/ $433 $410 $409 $452 $445 $427 $406 Gross Addition Corporate Expenses $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating $527,828 $641,388 $745,763 $832,816 $918,570 $988,065 $1,053,157 Expenses Operating Cash Flow $399,516 $518,084 $638,451 $722,033 $771,322 $826,068 $883,214 (OCF) Margin 43.1% 44.7% 46.1% 46.4% 45.6% 45.5% 45.6% Depreciation & $118,070 $147,554 $206,333 $200,825 $193,549 $182,849 $172,149 Amortization % of Revenues 12.7% 12.7% 14.9% 12.9% 11.5% 10.1% 8.9% EBIT $281,445 $370,530 $432,118 $521,208 $577,773 $643,219 $711,065 Margin 30.3% 32.0% 31.2% 33.5% 34.2% 35.5% 36.7% Taxes $106,949 $140,801 $164,205 $198,059 $219,554 $244,423 $270,205 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $174,496 $229,729 $267,913 $323,149 $358,219 $398,796 $440,861 Net Margin 18.8% 19.8% 19.4% 20.8% 21.2% 22.0% 22.8% Free Cash Flow Unlevered Net Income $174,496 $229,729 $267,913 $323,149 $358,219 $398,796 $440,861 Depreciation & $118,070 $147,554 $206,333 $200,825 $193,549 $182,849 $172,149 Amortization Capital Expenditures ($175,325) ($235,316) ($253,936) ($215,639) ($149,673) ($137,623) ($128,619) Change in Working $0 ($23,213) ($22,474) ($17,064) ($13,504) ($12,424) ($12,224) Capital As a % of Change in NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Revenues Free Cash Flow (FCF) $117,242 $118,754 $197,836 $291,271 $388,591 $431,597 $472,166
CONT'D 2001 2002 2003 2004 $51.11 $50.03 $49.46 $48.90 (2.5%) (2.1%) (1.1%) (1.1%) $2,066,517 $2,185,024 $2,297,456 $2,375,415 6.7% 5.7% 5.1% 3.4% $812,259 $894,278 $979,774 $1,035,697 39.3% 40.9% 42.6% 43.6% $1,254,258 $1,290,746 $1,317,682 $1,339,718 60.7% 59.1% 57.4% 56.4% $312,541 $297,929 $281,342 $260,496 15.1% 13.6% 12.2% 11.0% $391 $375 $365 $350 $0 $0 $0 $0 0.0% 0.0% 0.0% 0.0% $1,124,800 $1,192,207 $1,261,116 $1,296,193 $941,717 $992,817 $1,036,340 $1,079,222 45.6% 45.4% 45.1% 45.4% $151,996 $131,711 $112,727 $93,804 7.4% 6.0% 4.9% 3.9% $789,721 $861,105 $923,613 $985,419 38.2% 39.4% 40.2% 41.5% $300,094 $327,220 $350,973 $374,459 38.0% 38.0% 38.0% 38.0% $489,627 $533,885 $572,640 $610,960 23.7% 24.4% 24.9% 25.7% $489,627 $533,885 $572,640 $610,960 $151,996 $131,711 $112,727 $93,804 ($107,000) ($97,588) ($75,566) ($54,854) ($13,015) ($11,851) ($11,243) ($7,796) 10.0% 10.0% 10.0% 10.0% $521,609 $556,158 $598,558 $642,113
WASSERSTEIN PERELLA & CO. - --------------------------------------------------------------------------- Page 50 LIN BROADCASTING LIN CELLULAR PROPORTIONATE-MCCAW CASE WITHOUT AT&T SYNERGIES - ------------------------------------------------------------------------------ LIN: NOT INCLUDING WIRELESS DATA, INCLUDING LONG DISTANCE, INCLUDING ADDITIONAL PRODUCTS (CONT'D) (IN THOUSANDS, EXCEPT PER POP VALUES)
Discount Perpetuity Growth Rates of Free Cash Flow Rate 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash $2,284,620 $2,284,620 $2,284,620 $2,284,620 $2,284,620 $2,284,620 Flows Terminal Value $3,617,044 $4,260,460 $4,669,907 $5,161,243 $5,761,765 $6,512,418 Enterprise Value $5,901,663 $6,545,080 $6,954,527 $7,445,863 $8,046,385 $8,797,037 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $4,424,052 $5,067,468 $5,476,915 $5,968,251 $6,568,773 $7,319,426 Value per Share (3) $83.08 $95.16 $102.85 $112.08 $123.36 $137.45 Enterprise Value/POP $228.29 $253.18 $269.02 $288.03 $311.26 $340.30 Implied Exit Multiple of 8.8x 10.4x 11.4x 12.6x 14.1x 15.9x EBITDA 12.0% Present Value of Cash $2,178,017 $2,178,017 $2,178,017 $2,178,017 $2,178,017 $2,178,017 Flows Terminal Value $2,911,820 $3,359,793 $3,635,468 $3,957,089 $4,337,187 $4,793,304 Enterprise Value $5,089,837 $5,537,810 $5,813,485 $6,135,106 $6,515,204 $6,971,321 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $3,612,226 $4,060,198 $4,335,873 $4,657,495 $5,037,592 $5,493,710 Value per Share (3) $67.84 $76.25 $81.42 $87.46 $94.60 $103.17 Enterprise Value/POP $196.89 $214.22 $224.88 $237.32 $252.03 $269.67 Implied Exit Multiple of 7.7x 8.9x 9.7x 10.5x 11.5x 12.7x EBITDA 13.0% Present Value of Cash $2,078,320 $2,078,320 $2,078,320 $2,078,320 $2,078,320 $2,078,320 Flows Terminal Value $2,383,069 $2,706,731 $2,900,928 $3,122,868 $3,378,952 $3,677,717 Enterprise Value $4,461,388 $4,785,050 $4,979,248 $5,201,187 $5,457,271 $5,756,036 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $2,983,777 $3,307,439 $3,501,636 $3,723,575 $3,979,660 $4,278,425 Value per Share (3) $56.03 $62.11 $65.76 $69.93 $74.74 $80.35 Enterprise Value/POP $172.58 $185.10 $192.61 $201.20 $211.10 $222.66 Implied Exit Multiple of 6.9x 7.8x 8.4x 9.0x 9.7x 10.6x EBITDA 14.0% Present Value of Cash $1,984,989 $1,984,989 $1,984,989 $1,984,989 $1,984,989 $1,984,989 Flows Terminal Value $1,976,149 $2,216,834 $2,358,413 $2,517,690 $2,698,204 $2,904,505 Enterprise Value $3,961,138 $4,201,823 $4,343,402 $4,502,679 $4,683,192 $4,889,494 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $2,483,526 $2,724,211 $2,865,790 $3,025,067 $3,205,581 $3,411,882 Value per Share (3) $46.64 $51.16 $53.82 $56.81 $60.20 $64.07 Enterprise Value/POP $153.23 $162.54 $168.02 $174.18 $181.16 $189.14 Implied Exit Multiple of 6.2x 6.9x 7.4x 7.9x 8.4x 9.1x EBITDA
(1) Present values as of 9/15/95. Enterprise value per POP based on 6/30/95 estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs (2) Based on 3/31/95 net debt of $1,586 million, less option proceeds of $108 million, based on 1,535,338 options outstanding as of 1/1/95 at an average exercise price of $70.64 per public SEC filings. (3) Based on fully diluted shares including 51,714,736 shares outstanding as of 3/31/95, plus 1,535,338 options outstanding as of 1/1/95 per 10-K. - --------------------------------------------------------------------- WASSERSTEIN PERELLA & CO. Page 51 LIN BROADCASTING LIN CELLULAR PROPORTIONATE - MCCAW CASE WITHOUT AT&T SYNERGIES - ------------------------------------------------------------------------------- LIN: NOT INCLUDING WIRELESS DATA, INCLUDING LONG DISTANCE, INCLUDING ADDITIONAL PRODUCTS (CONT'D) (IN THOUSANDS, EXCEPT PER POP VALUES)
Discount Terminal Exit Multiples of OCF Rate 9.5x 10.0x 10.5x 11.0x 11.5x 11.0% Present Value of Cash $2,284,620 $2,284,620 $2,284,620 $2,284,620 $2,284,620 Flows Terminal Value $3,887,240 $4,091,831 $4,296,423 $4,501,014 $4,705,606 Enterprise Value $6,171,859 $6,376,451 $6,581,042 $6,785,634 $6,990,225 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $4,694,248 $4,898,839 $5,103,431 $5,308,022 $5,512,614 Value per Share (3) $88.15 $92.00 $95.84 $99.68 $103.52 Enterprise Value / POP $237.56 $245.44 $253.31 $261.19 $269.06 Implied Perpetuity 4.5% 4.8% 5.0% 5.3% 5.5% Growth Rate 12.0% Present Value of Cash $2,178,017 $2,178,017 $2,178,017 $2,178,017 $2,178,017 Flows Terminal Value $3,576,383 $3,764,614 $3,952,845 $4,141,076 $4,329,306 Enterprise Value $5,754,401 $5,942,631 $6,130,862 $6,319,093 $6,507,323 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $4,276,789 $4,465,020 $4,653,250 $4,841,481 $5,029,712 Value per Share (3) $80.32 $83.85 $87.38 $90.92 $94.45 Enterprise Value / POP $221.49 $228.74 $235.98 $243.23 $250.47 Implied Perpetuity 5.4% 5.7% 6.0% 6.3% 6.5% Growth Rate 13.0% Present Value of Cash $2,078,320 $2,078,320 $2,078,320 $2,078,320 $2,078,320 Flows Terminal Value $3,292,825 $3,466,131 $3,639,438 $3,812,744 $3,986,051 Enterprise Value $5,371,144 $5,544,451 $5,717,757 $5,891,064 $6,064,370 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $3,893,532 $4,066,839 $4,240,146 $4,413,452 $4,586,759 Value per Share (3) $73.12 $76.37 $79.63 $82.88 $86.14 Enterprise Value / POP $206.74 $213.41 $220.08 $226.75 $233.42 Implied Perpetuity 6.3% 6.7% 6.9% 7.2% 7.4% Growth Rate 14.0% Present Value of Cash $1,984,989 $1,984,989 $1,984,989 $1,984,989 $1,984,989 Flows Terminal Value $3,033,956 $3,193,637 $3,353,319 $3,513,001 $3,672,683 Enterprise Value $5,018,944 $5,178,626 $5,338,308 $5,497,990 $5,657,672 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $3,541,333 $3,701,014 $3,860,696 $4,020,378 $4,180,060 Value per Share (3) $66.50 $69.50 $72.50 $75.50 $78.50 Enterprise Value / POP $193.18 $199.33 $205.48 $211.62 $217.77 Implied Perpetuity 7.3% 7.6% 7.9% 8.2% 8.4% Growth Rate 15.0% Present Value of Cash $1,897,534 $1,897,534 $1,897,534 $1,897,534 $1,897,534 Flows Terminal Value $2,797,438 $2,944,671 $3,091,905 $3,239,138 $3,386,372 Enterprise Value $4,694,972 $4,842,205 $4,989,439 $5,136,673 $5,283,906 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $3,217,360 $3,364,594 $3,511,827 $3,659,061 $3,806,294 Value per Share (3) $60.42 $63.18 $65.95 $68.71 $71.48 Enterprise Value / POP $180.71 $186.38 $192.05 $197.72 $203.38 Implied Perpetuity 8.2% 8.5% 8.8% 9.1% 9.3% Growth Rate
(1) Present values as of 9/15/95. Enterprise value per POP based on 1995 POPs. (2) Based on 3/31/95 net debt of $1,586 million, less option proceeds of $108 million, based on 1,535,338 options outstanding as of 1/1/95 at an average exercise price of $70.64 per public SEC filings. (3) Based on fully diluted shares including 51,714,736 shares outstanding as of 3/31/95, plus 1,535,338 options outstanding as of 1/1/95 per 10-K. WASSERSTEIN PERELLA & CO. - ----------------------------------------------------------------------------- Page 52 LIN BROADCASTING WIRELESS DATA - MCCAW CASE WITHOUT AT&T SYNERGIES - ------------------------------------------------------------------------------ LIN WIRELESS DATA OPERATING MODEL (IN THOUSANDS)
INCOME 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 STATEMENT TOTAL REVENUES $0 $2,250 $9,000 $23,750 $44,500 $73,500 $106,500 $138,450 $179,985 $233,981 $304,175 % Growth NA NM 300.0% 163.9% 87.4% 65.2% 44.9% 30.0% 30.0% 30.0% 30.0% DIRECT $0 $4,225 $7,000 $11,000 $17,000 $20,000 $22,750 $29,575 $38,448 $49,982 $64,976 OPERATING REVENUES % of Revenues NA 187.8% 77.8% 46.3% 38.2% 27.2% 21.4% 21.4% 21.4% 21.4% 21.4% CASH FLOW $0 ($1,975) $2,000 $12,750 $27,500 $53,500 $83,750 $108,875 $141,537 $183,999 $239,199 BEFORE MARKETING Margin NA (87.8%) 22.2% 53.7% 61.8% 72.8% 78.6% 78.6% 78.6% 78.6% 78.6% SALES & $0 $2,750 $5,250 $9,500 $15,500 $22,000 $32,000 $41,600 $54,080 $70,304 $91,395 MARKETING % of Revenues NA 122.2% 58.3% 40.0% 34.8% 29.9% 30.0% 30.0% 30.0% 30.0% 30.0% CORPORATE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 EXPENSES % of Revenues NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% TOTAL $0 $6,975 $12,250 $20,500 $32,500 $42,000 $54,750 $71,175 $92,528 $120,286 $156,371 OPERATING EXPENSES OPERATING CASH $0 ($4,725) ($3,250) $3,250 $12,000 $31,500 $51,750 $67,275 $87,457 $113,695 $147,804 CASH ("OCF") Margin NA (210.0%) (36.1%) 13.7% 27.0% 42.9% 48.6% 48.6% 48.6% 48.6% 48.6% DEPRECIATION $0 $10,600 $11,160 $8,696 $9,197 $10,149 $8,416 $6,666 $6,330 $6,071 $5,524 & AMORTIZATION % of Revenues NA 471.1% 124.0% 36.6% 20.7% 13.8% 7.9% 4.8% 3.5% 2.6% 1.8% EBIT $0 ($15,325)($14,410) ($5,446) $2,803 $21,351 $43,334 $60,609 $81,127 $107,624 $142,280 Margin NA (681.1%) (160.1%) (22.9%) 6.3% 29.0% 40.7% 43.8% 45.1% 46.0% 46.8% TAXES $0 ($5,824) ($5,476) ($2,069) $1,065 $8,113 $16,467 $23,031 $30,828 $40,897 $54,066 Effective Tax 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Rate UNLEVERED NET $0 ($9,502) ($8,934) ($3,377) $1,738 $13,238 $26,867 $37,578 $50,299 $66,727 $88,214 INCOME Net Margin NA (422.3%) (99.3%) (14.2%) 3.9% 18.0% 25.2% 27.1% 27.9% 28.5% 29.0% Free Cash Flow UNLEVERED NET $0 ($9,502) ($8,934) ($3,377) $1,738 $13,238 $26,867 $37,578 $50,299 $66,727 $88,214 INCOME DEPRECIATION $0 $10,600 $11,160 $8,696 $9,197 $10,149 $8,416 $6,666 $6,330 $6,071 $5,524 & AMORTIZATION CAPITAL $0 ($19,000) ($5,000) ($5,000)($10,000)($10,000) ($5,250) ($5,250) ($5,250) ($5,250) ($5,250) EXPENDITURES CHANGE IN $0 ($225) ($675) ($1,475) ($2,075) ($2,900) ($3,300) ($3,195) ($4,154) ($5,400) ($7,019) WORKING CAPITAL As a % of NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Change in Revenues FREE CASH $0 ($18,127) ($3,449) ($1,156) ($1,140) $10,487 $26,733 $35,799 $47,225 $62,148 $81,468 FLOW ("FCF")
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Discount Rate PERPETUITY GROWTH RATES OF FREE CASH FLOW 6.0% 8.0% 10.0% 12.0% 14.0% 18.0% Present Value of Cash Flows $66,995 $66,995 $66,995 $66,995 $66,995 Terminal Value $154,566 $188,978 $240,598 $326,629 $498,693 -------- -------- -------- -------- -------- ENTERPRISE VALUE $221,560 $255,973 $307,592 $393,624 $565,688 Net Debt $0 $0 $0 $0 $0 EQUITY VALUE $221,560 $255,973 $307,592 $393,624 $565,688 VALUE PER SHARE $4.16 $4.80 $5.77 $7.39 $10.61 Implied Exit Multiple of 4.9x 6.0x 7.6x 10.3x 15.7x EBITDA 19.0% Present Value of Cash Flows $62,520 $62,520 $62,520 $62,520 $62,520 Terminal Value $131,915 $158,841 $197,734 $258,851 $368,863 -------- -------- -------- -------- -------- ENTERPRISE VALUE $194,435 $221,361 $260,254 $321,371 $431,383 Net Debt $0 $0 $0 $0 $0 EQUITY VALUE $194,435 $221,361 $260,254 $321,371 $431,383 VALUE PER SHARE $3.65 $4.15 $4.88 $6.03 $8.09 Implied Exit Multiple of 4.5x 5.4x 6.7x 8.8x 12.6x EBITDA 20.0% Present Value of Cash Flows $58,362 $58,362 $58,362 $58,362 $58,362 Terminal Value $113,327 $134,710 $164,645 $209,549 $284,387 -------- -------- -------- -------- -------- ENTERPRISE VALUE $171,689 $193,072 $223,007 $267,910 $342,749 Net Debt $0 $0 $0 $0 $0 EQUITY VALUE $171,689 $193,072 $223,007 $267,910 $342,749 VALUE PER SHARE $3.22 $3.62 $4.18 $5.03 $6.43 Implied Exit Multiple of 4.2x 5.0x 6.1x 7.7x 10.5x EBITDA 21.0% Present Value of Cash Flows $54,495 $54,495 $54,495 $54,495 $54,495 Terminal Value $97,922 $115,118 $138,568 $172,440 $225,668 -------- -------- -------- -------- -------- ENTERPRISE VALUE $152,416 $169,613 $193,063 $226,935 $280,163 Net Debt $0 $0 $0 $0 $0 EQUITY VALUE $152,416 $169,613 $193,063 $226,935 $280,163 VALUE PER SHARE $2.86 $3.18 $3.62 $4.26 $5.26 Implied Exit Multiple of 3.9x 4.6x 5.5x 6.9x 9.0x EBITDA
(1) Present Values as of 9/15/95. WASSERSTEIN PERELLA & CO. - ----------------------------------------------------------------------------- Page 54 LIN BROADCASTING LIN CELLULAR PROPORTIONATE - SENSITIVITY CASE - ---------------------------------------------------------------------------- LIN: NOT INCLUDING WIRELESS DATA, INCLUDING LONG DISTANCE, INCLUDING ADDITIONAL PRODUCTS (IN THOUSANDS, EXCEPT PER POP VALUES)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPs 25,722 25,980 26,240 26,502 26,767 27,034 27,304 27,578 27,854 28,133 28,414 % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning 771.302 1,092.076 1,587.399 2,070.865 2,481.767 2,886.521 3,284.306 3,666.878 4,024.885 4,352.573 4,610.246 Subscribers Gross Subscribers 557.510 744.662 822.650 805.766 855.424 899.623 934.151 947.786 944.519 968.685 881.533 Added Deactivations (236.737) (249.339) (339.184) (394.864) (450.669) (501.838) (551.579) (589.779) (616.831) (711.013) (689.666) Annual % Churn (25.41%) (18.61%) (18.54%) (17.35%) (16.79%) (16.26%) (15.87%) (15.34%) (14.73%) (15.87%) (14.65%) Monthly % Churn (2.12%) (1.55%) (1.55%) (1.45%) (1.40%) (1.36%) (1.32%) (1.28%) (1.23%) (1.32%) (1.22%) Net Subscribers 320.774 495.322 483.466 410.902 404.754 397.785 382.573 358.007 327.688 257.673 191.867 Added Ending Subscribers 1,092.076 1,587.399 2,070.865 2,481.767 2,886.521 3,284.306 3,666.878 4,024.885 4,352.573 4,610.246 4,802.113 Average Subscribers 931.689 1,339.737 1,829.132 2,276.316 2,684.144 3,085.413 3,475.592 3,845.882 4,188.729 4,481.410 4,706.180 Total Penetration 4.25% 6.11% 7.89% 9.36% 10.78% 12.15% 13.43% 14.59% 15.63% 16.39% 16.90% % Penetration Growth NA 43.9% 29.2% 18.7% 15.2% 12.7% 10.5% 8.7% 7.1% 4.9% 3.1% Annual Penetration 1.25% 1.91% 1.84% 1.55% 1.51% 1.47% 1.40% 1.30% 1.18% 0.92% 0.68% (1) % Growth NA 52.9% (3.4%) (15.9%) (2.5%) (2.7%) (4.8%) (7.3%) (9.4%) (22.1%) (26.3%)
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1994 1995 1996 1997 1998 1999 Income Statement Revenue/Subscriber/ $82.60 $73.09 $66.84 $62.53 $60.13 $57.29 Month % Growth NA (11.5%) (8.6%) (6.4%) (3.8%) (4.7%) Total Revenues $923,546 $1,175,108 $1,467,136 $1,708,154 $1,936,835 $2,121,322 % Growth NA 27.2% 24.9% 16.4% 13.4% 9.5% Direct Operating - $279,817 $339,134 $461,244 $559,882 $665,940 $750,474 Expenses % of Revenues 30.3% 28.9% 31.4% 32.8% 34.4% 35.4% Cash Flow Before - $643,729 $835,974 $1,005,891 $1,148,272 $1,270,895 $1,370,848 Marketing Margin 69.7% 71.1% 68.6% 67.2% 65.6% 64.6% Sales & Marketing $241,402 $305,311 $336,464 $364,206 $380,663 $384,139 % of Revenues 26.1% 26.0% 22.9% 21.3% 19.7% 18.1% Sales & Marketing / $433 $410 $409 $452 $445 $427 Gross Addition Corporate Expenses $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating - $521,219 $644,446 $797,708 $924,088 $1,046,603 $1,134,613 Expenses Operating Cash Flow $402,327 $530,663 $669,428 $784,066 $890,232 $986,709 (OCF) Margin 43.6% 45.2% 45.6% 45.9% 46.0% 46.5% Depreciation & $128,184 $188,818 $238,986 $260,674 $261,625 $248,446 Amortization % of Revenues 13.9% 16.1% 16.3% 15.3% 13.5% 11.7% EBIT $274,143 $341,845 $430,442 $523,392 $628,606 $738,263 Margin 29.7% 29.1% 29.3% 30.6% 32.5% 34.8% Taxes $104,174 $129,901 $163,568 $198,889 $238,870 $280,540 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $169,968 $211,944 $266,874 $324,503 $389,736 $457,723 Net Margin 18.4% 18.0% 18.2% 19.0% 20.1% 21.6% Free Cash Flow Unlevered Net Income $169,968 $211,944 $266,874 $324,503 $389,736 $457,723 Depreciation & $128,184 $188,818 $238,986 $260,674 $261,625 $248,446 Amortization Capital Expenditures ($190,343) ($301,124) ($294,122) ($279,903) ($202,317) ($186,996) Change in Working - $0 ($25,156) ($29,203) ($24,102) ($22,868) ($18,449) Capital As a % of Change in - NA 10.0% 10.0% 10.0% 10.0% 10.0% Revenues Free Cash Flow (FCF) $107,810 $74,482 $182,535 $281,172 $426,176 $500,725
2000 2001 2002 2003 2004 $55.83 $55.17 $54.94 $54.75 $54.15 (2.6%) (1.2%) (0.4%) (0.3%) (1.1%) $2,328,346 $2,546,174 $2,761,366 $2,944,454 $3,057,837 9.8% 9.4% 8.5% 6.6% 3.9% $858,201 $975,525 $1,096,295 $1,193,546 $1,261,177 36.9% 38.3% 39.7% 40.5% 41.2% $1,470,145 $1,570,650 $1,665,070 $1,750,908 $1,796,660 63.1% 61.7% 60.3% 59.5% 58.8% $379,265 $370,584 $354,195 $353,570 $308,537 16.3% 14.6% 12.8% 12.0% 10.1% $406 $391 $375 $365 $350 $0 $0 $0 $0 $0 0.0% 0.0% 0.0% 0.0% 0.0% $1,237,467 $1,346,109 $1,450,490 $1,547,117 $1,569,714 $1,090,879 $1,200,065 $1,310,876 $1,397,338 $1,488,123 46.9% 47.1% 47.5% 47.5% 48.7% $227,060 $202,078 $175,851 $152,833 $130,473 9.8% 7.9% 6.4% 5.2% 4.3% $863,819 $997,988 $1,135,025 $1,244,505 $1,357,650 37.1% 39.2% 41.1% 42.3% 44.4% $328,251 $379,235 $431,309 $472,912 $515,907 38.0% 38.0% 38.0% 38.0% 38.0% $535,568 $618,752 $703,715 $771,593 $841,743 23.0% 24.3% 25.5% 26.2% 27.5% $535,568 $618,752 $703,715 $771,593 $841,743 $227,060 $202,078 $175,851 $152,833 $130,473 ($169,646) ($142,256) ($130,292) ($102,451) ($76,298) ($20,702) ($21,783) ($21,519) ($18,309) ($11,338) 10.0% 10.0% 10.0% 10.0% 10.0% $572,280 $656,792 $727,755 $803,666 $884,580
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Discount Perpetuity Growth Rates of Free Cash Flow Rate 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash $2,707,663 $2,707,663 $2,707,663 $2,707,663 $2,707,663 $2,707,663 Flows Terminal Value $4,982,868 $5,869,244 $6,433,301 $7,110,169 $7,937,453 $8,971,558 Enterprise Value $7,690,531 $8,576,906 $9,140,964 $9,817,832 $10,645,116 $11,679,221 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $6,212,919 $7,099,295 $7,663,352 $8,340,220 $9,167,504 $10,201,609 Value per Share (3) $116.67 $133.32 $143.91 $156.62 $172.16 $191.58 Enterprise Value / POP $297.49 $331.78 $353.60 $379.78 $411.78 $451.79 Implied Exit Multiple of 8.8x 10.4x 11.4x 12.6x 14.1x 15.9x EBITDA 12.0% Present Value of Cash $2,573,833 $2,573,833 $2,573,833 $2,573,833 $2,573,833 $2,573,833 Flows Terminal Value $4,011,347 $4,628,477 $5,008,250 $5,451,317 $5,974,943 $6,603,294 Enterprise Value $6,585,179 $7,202,310 $7,582,082 $8,025,150 $8,548,776 $9,177,126 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $5,107,568 $5,724,698 $6,104,470 $6,547,538 $7,071,164 $7,699,515 Value per Share (3) $95.92 $107.51 $114.64 $122.96 $132.79 $144.59 Enterprise Value / POP $254.73 $278.61 $293.30 $310.44 $330.69 $355.00 Implied Exit Multiple of 7.7x 8.9x 9.6x 10.5x 11.5x 12.7x EBITDA 13.0% Present Value of Cash $2,448,894 $2,448,894 $2,448,894 $2,448,894 $2,448,894 $2,448,894 Flows Terminal Value $3,282,934 $3,728,814 $3,996,341 $4,302,087 $4,654,871 $5,066,452 Enterprise Value $5,731,829 $6,177,708 $6,445,236 $6,750,982 $7,103,765 $7,515,346 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $4,254,217 $4,700,096 $4,967,624 $5,273,370 $5,626,153 $6,037,734 Value per Share (3) $79.89 $88.26 $93.29 $99.03 $105.66 $113.38 Enterprise Value / POP $221.72 $238.97 $249.32 $261.15 $274.79 $290.72 Implied Exit Multiple of 6.9x 7.8x 8.4x 9.0x 9.7x 10.6x EBITDA 14.0% Present Value of Cash $2,332,145 $2,332,145 $2,332,145 $2,332,145 $2,332,145 $2,332,145 Flows Terminal Value $2,722,359 $3,053,928 $3,248,969 $3,468,390 $3,717,067 $4,001,269 Enterprise Value $5,054,503 $5,386,073 $5,581,113 $5,800,534 $6,049,211 $6,333,414 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $3,576,892 $3,908,461 $4,103,502 $4,322,923 $4,571,600 $4,855,802 Value per Share (3) $67.17 $73.40 $77.06 $81.18 $85.85 $91.19 Enterprise Value / POP $195.52 $208.35 $215.89 $224.38 $234.00 $244.99 Implied Exit Multiple of 6.2x 6.9x 7.4x 7.9x 8.4x 9.1x EBITDA Implied Exit Multiple of 5.6x 6.2x 6.6x 7.0x 7.4x 8.0x EBITDA
(1) Present values as of 9/15/95. Enterprise value per POP based on 6/30/95 estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Based on 3/31/95 net debt of $1,586 million, less option proceeds of $108 million, based on 1,535,338 options outstanding as of 1/1/95 at an average exercise price of $70.64 per public SEC filings. (3) Based on fully diluted shares including 51,714,736 shares outstanding as of 3/31/95, plus 1,535,338 options outstanding as of 1/1/95 per the 10-K. WASSERSTEIN PERELLA & CO. - ------------------------------------------------------------------------------ Page 57 LIN BROADCASTING LIN CELLULAR PROPORTIONATE - SENSITIVITY CASE - ----------------------------------------------------------------------------- LIN: NOT INCLUDING WIRELESS DATA, INCLUDING LONG DISTANCE, INCLUDING ADDITIONAL PRODUCTS (CONT'D) (IN THOUSANDS, EXCEPT PER POP VALUES)
Discount Rate Terminal Exit Multiples of OCF 9.5x 10.0x 10.5x 11.0x 11.5x 11.0% Present Value of Cash Flows $2,707,663 $2,707,663 $2,707,663 $2,707,663 $2,707,663 Terminal Value $5,360,055 $5,642,163 $5,924,272 $6,206,380 $6,488,488 Enterprise Value $8,067,718 $8,349,826 $8,631,934 $8,914,043 $9,196,151 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $6,590,106 $6,872,214 $7,154,323 $7,436,431 $7,718,539 Value per Share (3) $123.76 $129.06 $134.35 $139.65 $144.95 Enterprise Value / POP $310.53 $321.39 $332.25 $343.11 $353.97 Implied Perpetuity Growth Rate 4.5% 4.8% 5.1% 5.3% 5.5% 12.0% Present Value of Cash Flows $2,573,833 $2,573,833 $2,573,833 $2,573,833 $2,573,833 Terminal Value $4,931,421 $5,190,969 $5,450,517 $5,710,066 $5,969,614 Enterprise Value $7,505,253 $7,764,801 $8,024,350 $8,283,898 $8,543,447 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $6,027,641 $6,287,190 $6,546,738 $6,806,287 $7,065,835 Value per Share (3) $113.19 $118.56 $122.94 $127.82 $132.69 Enterprise Value / POP $288.88 $298.87 $308.86 $318.86 $328.85 Implied Perpetuity Growth Rate 5.4% 5.7% 6.0% 6.3% 6.5% 13.0% Present Value of Cash Flows $2,448,894 $2,448,894 $2,448,894 $2,448,894 $2,448,894 Terminal Value $4,540,426 $4,779,395 $5,018,365 $5,257,335 $5,496,305 Enterprise Value $6,989,320 $7,228,290 $7,467,259 $7,706,229 $7,945,199 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $5,511,708 $5,750,678 $5,989,648 $6,228,617 $6,467,587 Value per Share (3) $103.51 $107.99 $112.48 $116.97 $121.46 Enterprise Value / POP $269.03 $278.22 $287.42 $296.62 $305.82 Implied Perpetuity Growth Rate 6.3% 6.7% 6.9% 7.2% 7.4% 14.0% Present Value of Cash Flows $2,332,145 $2,332,145 $2,332,145 $2,332,145 $2,332,145 Terminal Value $4,183,475 $4,403,658 $4,623,841 $4,844,024 $5,064,207 Enterprise Value $6,515,620 $6,735,803 $6,955,986 $7,176,168 $7,396,351 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $5,038,008 $5,258,191 $5,478,374 $5,698,557 $5,918,740 Value per Share (3) $94.61 $98.75 $102.88 $107.02 $111.64 Enterprise Value / POP $250.79 $259.27 $267.74 $276.22 $284.69 Implied Perpetuity Growth Rate 7.3% 7.6% 7.9% 8.2% 8.4% 15.0% Present Value of Cash Flows $2,222,944 $2,222,944 $2,222,944 $2,222,944 $2,222,944 Terminal Value $3,857,344 $4,060,362 $4,263,380 $4,466,398 $4,669,416 Enterprise Value $6,080,288 $6,283,306 $6,486,324 $6,689,342 $6,892,360 Less: Net Debt (2) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) ($1,477,612) Equity Value $4,602,676 $4,805,694 $5,008,712 $5,211,730 $5,414,748 Value per Share (3) $86.44 $90.25 $94.06 $97.87 $101.69 Enterprise Value / POP $234.04 $241.85 $249.66 $257.48 $265.29 Implied Perpetuity Growth Rate 8.2% 8.5% 8.8% 9.1% 9.3%
(1) Present values as of 9/15/95. Enterprise value per POP based on 1995 POPs. (2) Based on 3/31/95 net debt of $1,560 million, less option proceeds of $108 million, based on 1,535,338 options outstanding as of 1/1/95 at an average exercise price of $70.64 per public SEC filings. (3) Based on fully diluted shares including 51,714,736 shares outstanding as of 3/31/95, plus 1,535,338 options outstanding as of 1/1/95 per the 10-K WASSERSTEIN PERELLA & CO. - ----------------------------------------------------------------------------- Page 58 LIN BROADCASTING Discounted Cash Flow Analysis - ------------------------------------------------------------------------------ WACC ASSUMPTIONS AND CALCULATIONS
ASSUMPTIONS Tax Rate 40.00% Risk Free Rate of Return 6.09% Market Risk Premium 7.22%
Risk Free Rate = 10 year U.S. Treasury as of 6/28/95 Market Risk Premium as per Ibbotson, 1994 Yearbook
UNLEVERED BETAS (1) Current Mkt. Val. Mkt. Val. Debt/ Levered of Debt of Equity Total Unlevered Company Beta (2) ($MM) ($MM) Capital Beta (3) AirTouch Comm. 1.00 $494 $13,620 3.5% 0.98 LIN Broadcasting 1.05 52 6,628 19.2% 0.96 Cellular Comm. 0.72 57 1,825 3.0% 0.71 Vanguard Cellular 0.97 41 980 4.0% 0.95 Average 0.94 $161 $5,763 7.4% 0.90
WEIGHTED AVERAGE COST OF CAPITAL (4) Capital Cost of Cost of Structure Equity Debt Wtd. Avg. Debt/ Debt/ Relevered Cost of Before After Cost of Capital Equity Beta (5) Equity Tax Tax Capital 0% 0% 0.90 12.58% 9.000% 5.40% 12.58% 5% 5% 0.93 12.78% 9.000% 5.40% 12.41% 10% 11% 0.96 13.01% 9.000% 5.40% 12.25% 15% 18% 0.99 13.27% 9.000% 5.40% 12.09% 20% 25% 1.03 13.55% 9.000% 5.40% 11.92% 25% 33% 1.08 13.88% 9.333% 5.60% 11.81% 30% 43% 1.13 14.25% 9.667% 5.80% 11.71% 35% 54% 1.19 14.67% 10.000% 6.00% 11.64%
* WACC is widely acknowledged to be only an estimate of the cost of capital, as the capital asset pricing model is no longer perfectly consistent with recent finance theory. (1) Assumes book value of debt approximates market value and excludes minority interests. (2) Predicted beta as per BARRA, U.S. Equity Beta Book, May 1995. (3) Unlevered Beta = Levered Beta / { 1+ (Debt/Equity)*(1-Tax Rate)}. (4) Based on the Weighted Average Cost of Capital and the Capital Asset Pricing Model and on WP&Co. calculations. (5) Relevered Beta = Unlevered Beta * {1 + (Debt/Equity)*(1-Tax Rate)}. WASSERSTEIN PERELLA & CO. - --------------------------------------------------------------------------- EXHIBIT (b)(3) Materials prepared by Morgan Stanley & Co. Incorporated. MORGAN STANLEY CONFIDENTIAL MEMORANDUM - ----------------------------------------------------------------- TO: Wasserstein Perella & Co. DATE: March 5, 1995 FROM: Morgan Stanley LIN Team SUBJECT: Issues Relating to Potential Third Party Purchasers - ----------------------------------------------------------------- We would like to take this opportunity to highlight three key points relating to third party buyers which were not discussed at our March 2 meeting. Additionally, we have attached a separate memorandum that refutes the alleged inconsistencies in our February 21 presentation. I. Valuation Implications of Excluding AT&T and McCaw as Potential Bidders We find it inconceivable that LB/BS did not change their valuation view after being instructed that their interpretation that AT&T and McCaw were to be considered as potential bidders was in fact incorrect. In their presentation of February 14 to the LIN Independent Directors, LB/BS devote an entire section to an analysis of the pro forma effects of a business combination of AT&T with LIN, presumably to demonstrate that AT&T could well afford to pay a very high price for LIN with minimal dilution and modest capitalization implications. Moreover, in the section relating to third party buyers in the same presentation, AT&T is specifically referenced as a potential buyer. LB/BS' special counsel Fried, Frank, in their letter of February 22 to Wasserstein Perella written at the request of LB/BS, note "the increased value that would accrue to LIN if AT&T, this country's telecommunications leader, was considered as a hypothetical suitor. An interpretation of the Definition that would exclude AT&T as a hypothetical suitor because it is now a related third party would have the effect of reducing the Private Market Value per Share." Additionally, LB/BS relied extensively upon the operating projections of equity research analysts in supporting the reasonableness of the Base Case projections. Many of these analysts, however, explicitly state that they have included AT&T value-added in their projections. As a result, these projections are likely to overstate LIN's performance if owned by an unrelated third party. LB/BS also relied quite extensively on Wall Street research estimates and commentary on LIN's potential private market value. Virtually all of these estimates explicitly or implicitly factor in AT&T value-added and the assumed "virtual certainty" of the purchase of LIN by AT&T. II. Valuation Implications of a Delayed Sale to an Unrelated Third Party To the extent 100% of LIN were to be offered for sale to an unrelated third party, we believe an aggressive but realistic timetable would include the execution of a definitive agreement by June 30, 1995 and a closing on or about June 30, 1996. Since LB/BS' valuation opinion "assumes a closing date for an acquisition of LIN of June 30, 1995" and an unrelated third party would likely close on an acquisition of LIN on or about June 30, 1996, two alternative conclusions can be drawn. One is that LB/BS believe that, if LIN were to be offered for sale to an unrelated third party, a purchase price of approximately $180 per share would be agreed to with payment on or around June 30, 1996, such that its value as of June 30, 1995 would be approximately $155 per share. We note that an agreement to pay $180 per share represents an $11 billion transaction requiring purchase accounting treatment with a valuation of approximately $420 per POP. Alternatively, one could conclude that LB/BS believe that their $155 per share valuation view reflects an assumption that an unrelated third party would agree to pay $155 per share on or about June 30, 1996, thereby resulting in a value as of June 30, 1995 of less than $135 per share. We continue to believe that a price of $105 per share payable on or about June 30, 1995 is a much more consistent and realistic equilibration of future values that could potentially be achieved in 1996 through an agreement in 1995 to sell LIN to an unrelated third party. III. Review of Unrelated Third Party Potential Purchasers In arriving at their characterization that "a deep market exists for LIN's cellular properties," LB/BS have made a number of misstatements and "tortured" assumptions. In including AirTouch/US West and Bell Atlantic/NYNEX as potential purchasers, LB/BS ignore the fact that AirTouch/US West and Bell Atlantic/NYNEX announced that they had signed a definitive partnership agreement on October 20, 1994. The definitive partnership agreement expressly prohibits any partner from acquiring any ownership interest in a cellular, ESMR or PCS system (a "System") the service area of which overlaps in any material respect with the service area of a System in which any partner or its affiliates already holds an ownership interest. The definitive agreement has a 99-year term, with earlier termination only upon the occurrence of very limited specified events. Each of the partners has agreed not to withdraw or do anything to dissolve the partnership except by unanimous written consent of the partners. We do not understand what could lead LB/BS to assert that this agreement "could easily be broken by either group to pursue LIN." Similarly, to suggest that Pacific Telesis could credibly be considered a buyer of all of LIN given the recent spin-off of all of their cellular properties defies all logic. The fact remains that at best there are three feasible bidders for LIN. Although LB/BS suggest that LIN "could form the basis of a national wireless strategy" for MCI, enabling MCI to "leverage its brand name across LIN's markets" for a purchase price in excess of $7 billion, MCI would only be able to place its brand in New York and Dallas. Moreover, the notion that an MCI purchase would "impair AT&T's nationwide wireless strategy" ignores the fact that such an acquisition would place billions of dollars in AT&T's hands without any restrictions on AT&T's ability to compete with MCI in LIN's markets. The observation that the "[a]ddition of New York would fill a noticeable gap in SBC's northeastern presence" ignores the fact that SBC declined to bid on PCS in New York, declined to pay $200 per POP for the SNET properties in New England and declined to top Comcast's $185 per POP bid for Philadelphia a few years back. Moreover, although "Los Angeles would give SBC a western presence" it still would neither get their brand in the Los Angeles market nor enable their highly regarded management team to run the cellular operation in Los Angeles. Finally, they do not appear to have been aggressively pursuing the San Diego cellular property recently sold by US West. With respect to BellSouth, although an acquisition of LIN would give them "complete control of Houston and Los Angeles" the strategic question is whether they are prepared to pay billions of dollars to improve a co-control position to a control position as well as purchase New York and Dallas at very robust per POP valuations given the resulting dilution and their historically disciplined approach to cellular values. In summary, we would characterize third party interest in LIN as anything but "deep." MORGAN STANLEY CONFIDENTIAL MEMORANDUM - ----------------------------------------------------------------- TO: Wasserstein Perella & Co. DATE: March 5, 1995 FROM: Morgan Stanley LIN Team SUBJECT: Rebuttal Points - ----------------------------------------------------------------- The following is a rebuttal to the LB/BS alleged inconsistencies in the Morgan Stanley presentation of February 21: 1. Use of LIN's Beta LB/BS consistently gave great weight to LIN's standalone beta in their presentations from February 9 through February 21 until Morgan Stanley pointed out that they had incorrectly calculated LIN's standalone asset beta in their cost of equity calculations (see Exhibit I). Since we have highlighted this error, LB/BS now disavow the appropriateness of using LIN's standalone beta in their cost of equity calculation. In relying on LIN's specific beta in their analysis through February 21, BS/LB calculated LIN's asset beta, or unlevered equity beta, to be 0.99. However, they failed to re-lever this beta at their stated target capitalization of 35% when attempting to estimate the cost of equity for LIN at such a leverage ratio. Re-levering LIN's equity beta of 0.99 at 35% debt/capitalization would result in a predicted equity beta of 1.31. Their cost of equity calculation (using their assumptions regarding risk-free rate and tax rate) would be as follows: Cost of Equity = 7.86% + 1.31 * 7.22% = 17.32% This calculation is far outside the assumed cost of equity of 14-16% on which LB/BS relied. Although LB/BS reference Brealey & Myers in an attempt to support their position that industry averages are preferable to individual company betas, Brealey & Myers, Principles of Corporate Finance, Third Edition, use individual company betas to determine individual company costs of equity (p. 140). Their caution in using individual company betas is simply driven by the fact that betas in any one period are based only on a limited number of observations (p. 178) and are subject to measurement error. However, given that we have looked at multiple observations of LIN's beta over multiple measurement periods extending over a period of years, we can use LIN's beta with confidence. Again, referring to Brealey & Myers, we would point out that a company's beta is a measure of that company's systematic risk as opposed to nonsystematic risk. We are unaware of any financial theory which would suggest that a company's beta is affected by nonsystematic factors. Any movements in LIN's share price as a result of specific events relating to the PMVG are clearly nonsystematic and thus do not affect the calculation of beta. Moreover, LIN's calculated beta has been remarkably consistent over time, through the appraisal date. Finally, given the large-market concentration of LIN's POPs, with its concomitant reliance on business customers, LIN's results are arguably more sensitive to changes in overall macroeconomic conditions than its publicly traded peers, which is consistent with a higher observed asset beta. LIN's Target Leverage To the extent that one believes that a long-term target capitalization is more appropriate to use than the current capitalization in estimating a target capital structure, we would suggest that long distance companies operating in a competitive environment comprise the most direct universe of comparable companies. These observed capital structures are entirely consistent with our assertion that a capital structure consisting of 20% debt for a cellular company is indeed aggressive. Company Net Debt/Market Cap ------- ------------------ MCI -2% ALC 5% Sprint(1) 9% LDDS 19% AT&T(2) 22% Mean 11% LIN's Cost of Debt Floating debt rates are not appropriate for use in deriving discount rates to apply to long-term cash flow projections. - ------------------------- (1) Pro forma for proposed $4.2Bn equity investment by France Telecom and Deutsche Telekom. (2) Includes $5.4Bn of indebtedness at AT&T Credit Holdings. Floating rates of interest today are lower than fixed rates, due to expectations/risks of a future rise in short-term interest rates. This risk can be measured by rates charged to swap floating rate obligations into fixed rate obligations. As of February 15, 1995, an applicable swap rate (based on LIN's current credit facility, upon which LB/BS relied) would be T + 34 bp for a 5-year obligation. Based on a 5-year UST yield of 7.34%, a LIBOR obligation could be swapped to a fixed rate obligation of 7.68%. In addition, the interest rate of LIBOR + 250 bp on this facility increases annually beginning in 1996 to spreads of LIBOR + 300, + 350, and + 400. These interest rate calculations are summarized below: Today 2000 ----- ---- Fixed Rate Benchmark (5-Year UST) 7.34% 7.34% Applicable Swap Spread to LIBOR (2/15/95) 0.34 0.34 ------ ------ Base Swapped Rate 7.68% 7.68% Bank Facility Spread to LIBOR(3) 2.53 4.06 Fixed-Rate Equivalent Yield 10.21% 11.74% 2. Financial Advisor Discount Rates/Terminal Values in GTE/Contel Cellular Transaction Careful analysis of the GTE/Contel Cellular proxy suggests that with respect to the PaineWebber and Merrill Lynch DCF valuation analyses, they were almost entirely predicated on the five-year management projections. "Due to the inherently less certain nature of the ten year projections, and the fact that the Company had advised [PaineWebber and Merrill Lynch] that it had not prepared the ten year projections as part of its normal planning process, [PaineWebber and Merrill Lynch] relied more heavily on the analysis derived from the five year projections." Lazard Freres, however, chose to use the 10-year Contel Cellular projections although they had not been prepared as part of the normal planning process and had cellular EBITDA projections which showed essentially constant EBITDA from year six through year ten. To the extent that LIN Management were to present a business case wherein EBITDA was projected to be flat from year six through year ten, one might well attempt to address such conservatism by, among other things, using lower discount rates and higher exit multiples than otherwise. (See Exhibit II for further analysis.) - ------------------ (3) Represents bond equivalent yield of money market spread 3. Use of Analyst Projections LB/BS claim that "AT&T [entered] into a $16Bn acquisition [relying] solely on analyst projections." What Morgan Stanley in fact stated was that AT&T relied heavily on analyst revenue and EBITDA estimates through year-end 1994. Near-term operating projections are far less subject to error, and AT&T was instructed by McCaw at the time that analyst estimates were entirely consistent with McCaw management's internal forecasts for 1993 and 1994. We have taken exception to analyst projections because they have explicitly included AT&T value-added which is explicitly not to be included in arriving at a private market valuation for LIN. Moreover, we do not consider research analysts to be experts in the derivation or application of discount rates or terminal multiples which would likely be used by third party buyers. Furthermore, while the research analysts purport to derive the intrinsic value of LIN assuming it continues to be owned by AT&T and has the benefit of AT&T synergies, none of the research analysts appear to have analyzed how an unrelated third party would approach an acquisition of LIN and what they might actually pay. As further evidence of our point, if one accepts all of Frank Governali's (First Boston research analyst) financial and operating assumptions for LIN (including his discount rates and his perpetual growth rates) but applies the correct arithmetic, one derives values of approximately $100 per share including AT&T value-added. 4. Accuracy of Analyst Projections The issue is not the fact that analyst projections have increased over the past couple of years. The issue is simply that analysts have increased their later year projections notwithstanding the fact that actual cellular results have consistently fallen short of previous projections. 5. Understanding Cellular Fundamentals We do not see how anyone can dispute the fact that if a cellular operator achieves the same revenue base as projected, but does so through more customers spending less per month, the cellular business must be less profitable. That is, in order to achieve the same revenue base, the cellular operator has been forced to incur greater marketing expenses associated with greater gross adds and greater churn, as well as greater administrative and operating expenses and increased capital expenditures. 6. Comparison of Actual vs. Projected LIN Results After adjusting the 1992 projections to reflect LIN's additional ownership in New York, actual revenue was only 4% higher than the 1992 projections, while EBITDA was 18% lower than those same projections. We do not see how missing the 1992 EBITDA forecast by 18%, which BS/LB have themselves stated is the most relevant statistic in measuring a cellular company's operating performance, while being essentially on target with revenues, suggests anything other than that LIN has fallen short of its 1992 projections. 7. Wireless Data Using McCaw Management's assumptions for discount rate and terminal multiple for Wireless Data of 20% and 10x for projections over a six-year horizon ending in the year 2000, implies a value for Wireless Data of $180MM. Morgan Stanley, in using the ten-year projections for wireless data derived values of $330MM, or more than 180% of the value that McCaw management ascribes to the business. Moreover, this valuation is entirely consistent with the aggregate value placed on Contel Cellular's wireless division. We continue to believe that a $330MM valuation is aggressive since there is no evidence to support the assertion that an unrelated third party would pay even this much for the wireless data component. 8. $300 per POP Precedent Transactions We would like to point out the following regarding precedent transactions: - McCaw acquired LIN for a combination of cash and securities which on a blended basis provided value to the LIN shareholders of approximately $285 per POP at announcement and approximately $265 per POP at closing. - Although Metromedia did pay $15.5MM for a 1.01% interest in Philadelphia which transformed a 49% noncontrol position into a 50.01% control position, they shortly thereafter sold their controlling interest in Philadelphia for approximately $185 per POP to Comcast. - The offer to acquire Associated Communications' 6% interest in the SF/SJ markets was in part to prevent Associated from attempting to assert any veto rights on the proposed McCaw/Pacific Telesis resolution to their "shotgun" agreement. Even so, the offer represented only 15x 1993 EBITDA. - CCI may have traded in excess of $300 per POP in the public equity markets, but it has not been sold to a third party so there is still no evidence as to what someone would actually pay for CCI today. - The arbitrary allocation of the Washington D.C. purchase price was discussed in great detail at our meeting on Thursday. - Although the Dallas transaction was done at $280 per POP, that still is not $300 per POP and represents only 7-10x estimated 1995 EBITDA reflecting the property's superior financial performance resulting from SBC's 60%-plus market share in Dallas. 9. Public Trading Valuation In reviewing various research reports relating to AirTouch, we were unable to find any evidence that the analyst community considers AirTouch's current 1995E EBITDA trading multiples to be anything other than the approximately 11 times value noted in our presentation and the 11.3 times noted in the LB/BS presentation of February 15, 1995. In the course of this review, however, we did become aware that Lehman Brothers' research analyst, John Bauer, uses a 14% WACC and a 10x EBITDA exit multiple in the year 2000 to value AirTouch on a DCF basis. 10. SBC's Valuation of Cellular Properties We continue to note that even though LB/BS attempt to characterize SBC as a "very aggressive bidder for [the SNET] properties," SBC was apparently unwilling to pay $200 per POP for these strategic properties. 11. Original Expectations Re: AT&T/McCaw Closing Date AT&T believed an 18-month drop dead date would have been safer to ensure enough time to obtain regulatory approvals but, recognizing McCaw's need to have the acquisition resolved before commencement of the PMVG process, proposed a drop dead date of December 31, 1994. McCaw argued that, if the merger were not to close, McCaw needed to know that sufficiently in advance of the PMVG process to give it time to prepare. Ultimately, the September 30, 1994 drop dead date was agreed to as a compromise. AT&T recognized that, because of the nature of the regulatory process, the drop dead date chosen would tend to set the time frame and deadline for receipt of approvals. Thus, AT&T expected that the regulatory approval process was not likely to be completed much, if at all, in advance of the drop dead date. 12. Other There is no need to dignify these allegations with a response. EXHIBIT I LIN Broadcasting Weighted Average Cost of Capital Analysis Cost of Equity Based on the Capital Asset Pricing Model The cost of equity is equal to the following formula: Ke = Rf + B(Rm - Rf) where: Ke = Expected rate of return on LIN Broadcasting's Common Stock Rf = Risk-free rate, usually represented by the intermediate-term U.S. Treasury Bond rate, herein assumed to be the 10-year Treasury Bond rate - 7.86% B = LIN Broadcasting's Equity Beta, herein assumed to be - 1.04(b) Rm = The expected return on a fully diversified market portfolio (Rm - Rf) = Expected market return over the risk-free rate. Assumed - 7.22%(c) Solving for Ke Using Industry Derived Unleveraged Equity Beta: Ke = 7.86% + 1.04 * 7.22% Ke = 15.36% ====== Equity Market Premium(d) From To Mean (d) ---- ---- -------- 1926-36 1993 7.28% 1937-46 1993 7.45% 1947-56 1993 6.44% Notes: (a) Treasury Bond rate as of January 5, 1995. (b) Per BETA Derivation Analysis (c) Average (arithmetic mean) risk premium of Common Stock over intermediate Treasury Bonds for the period 1926-1993. Source: RG Ibbotson and RA Sinquefield, Stocks, Bonds, Bills and Inflation: 1994 Yearbook. (d) Mean of actual end of period equity market premium for each year during specified period. Solving for Ke using LIN Unleveraged Equity Beta: Ke = 7.86% + .99*7.22% Ke = 15.03% ====== [The following are handwritten Morgan Stanley notes] LIN's Re-Levered Beta = 0.99* [1 + .35/.65 (1 - .40)] = 1.31 ==== Ke at 35% Debt/Cap --> Ke = 7.86% + 1.31 * 7.22% = 17.32% ====== EXHIBIT I LIN Broadcasting Weighted Average Cost of Capital Analysis Calculation of Weighted Average Cost of Capital
Marginal Pre-Tax After-Tax Weight Rate Cost Weighted -------- ---------- ----------- ---------- Assuming Industry Derived Beta Debt 35.00%(b) 9.63%(c) 5.77% 2.02% Common Equity 65.00% 15.36% 15.36% 9.98% ---------- ------- |---------------------------| Total Capitalization 100.00% | WACC 12.00% | ======== |---------------------------| Marginal Pre-Tax After-Tax Weight Rate Cost Weighted -------- ---------- ----------- ---------- Assuming LIN's Unleveraged Equity Beta Debt 35.00%(b) 9.63%(c) 5.77% 2.02% Common Equity 65.00% 15.03% 15.03% 9.77% ---------- ------- |---------------------------| Total Capitalization 100.00% | WACC 11.79% | ======== |---------------------------| [The following are handwritten Morgan Stanley notes:] Weight Pre-Tax After-Tax Weighted -------- ---------- ----------- ---------- Assuming LIN's Re-Levered Beta: Debt 35% 9.63% 5.77% 2.02% Equity 65% 17.32% 17.32% 11.26% -------- -------- |---------| | 13.28% | |---------| Note: Morgan Stanley also differs with respect to the assumed cost of debt. Notes: (a) Assumed tax rate: 40.0% based on weighted tax rates forthe four major LIN Broadcasting cellularr markets. (b) Assumed target long-term capital structure. (c) LIN cost of debt assumes average cost off debt based on the following debt capital strucutre: 50% bank debt (LIBOR + 250b.p.) and 50% 7-yearr notes (assumed to be 10.50% based on current trading levels of comparable companies. EXHIBIT I LIN Broadcasting Discount Rate Analysis and Terminal Value Derivation Type of Percentage of Required Rate After Tax Weighted Average Capital Capitalization of Return Cost of Capital Cost of Capital - -------- -------------- ------------- --------------- ---------------- Debt 35.0% 9.00% - 11.00% 5.40% - 6.60% 1.89% 2.31% Equity 65.0% 14.00% - 16.00% 14.00% - 16.00% 9.10% 10.40% ------ ------ Total 100.0% 11.0% 12.7% ===================================================================================================== - - The calculation of EBITDA multiple is based on the dividend growth model = (1/Kw - G) * 0.58 - - Kw is defined as the weighted average cost of capital (WACC) - - G is defined as the future sustainable free cash flow growth rate - - 1/(Kw - G) yields the resulting free cash flow multiple - - Based on LIN projections, the ratio of Free Cash Flow to EBITDA averages 0.58 in the outer 3 years (2002-2004) of the projection model (LIN Base) Terminal Multiple Analysis - -------------------------------------------------------------------------------------------------------- G = Sustainable Growth Rate 6.5% 7.0% 7.5% 8.0% 8.5% ------------------------------------------------------------------ Kw=WACC ----------- -------------------------------------------------------------------- 11.00% 12.9x 14.5x 16.6x 19.3x 23.2x 11.50% 11.6x 12.9x 14.5x 16.6x 19.3x 12.00% 10.5x 11.6x 12.9x 14.5x 16.6x 12.50% 9.7x 10.5x 11.6x 12.9x 14.5x 13.00% 8.9x 9.7x 10.5x 11.6x 12.9x ----------- -------------------------------------------------------------------- <- Impact on [The following are handwritten Morgan Stanley notes] Exit Multiple 13.28% 8.6x 9.2x 10.0x 11.0x 12.1x -------------------------------------------------------------------------------------------------------- GDP Mean GDP Mean Projected Real CPI Change(b) Real Growth Nominal Growth GDP Growth(b) -------------------------------------------------------------------------------------------------------- 1929-1993 4.2% 12.6% 1994 3.7% 3.0% 1950-1993 2.2% 10.7% 1995 2.7% 3.6% 1970-1993 1.9% 8.5% 1996 2.2% 3.5% 1980-1993 1.2% 5.9% 1997 2.3% 3.5% 1985-1993 1.4% 5.0% 1998 2.4% 3.5% 1990-1993 0.4% 3.9% 1999 2.4% 3.6% -------------------------------------------------------------------------------------------------------- Notes: (a) Source: Statistical Abstract of the United States 1994 (11th Edition). Values expressed in constant 1987 dollars. (b) Source: Country Data Forecasts 1994, Bank of America; Values expressed in constant 1980 dollars. /TABLE ----------------------------------------- FCF/EBITDA Mean FCF Growth ----------------------------------------- 1999-2004 0.559 99.3% 2000-2004 0.567 68.5% 2001-2004 0.575 43.6% 2002-2004 0.580 25.9% 2003-2004 0.588 10.3% ----------------------------------------- EXHIBIT II Assumptions of Financial Advisors [The financial advisors in the GTE/Contel transaction relied on different sets of projections for purpose of valuation...] - -- "Paine Webber prepared and reviewed the results of an unlevered discounted cash flow analysis... based on two sets of financial projections[:] a five-year strategic plan and a ten-year projection." "Due to the inherently less certain nature of the ten-year projections and the fact that the Company had advised Paine Webber that it had not prepared the ten-year projections as part of its normal planning process, Paine Webber relied more heavily on the analysis derived from the five-year projections." - -- "Merrill Lynch performed a discounted cash flow analysis based upon... two sets of financial forecasts: a 5-year strategic plan projection and a 10-year projection." "Due to the inherently less certain nature of the 10-year projections and the fact that the Company had advised Merrill Lynch that it had not prepared the 10-year projections as part of its normal planning process, Merrill Lynch relied more heavily on the analysis derived from the five-year projections." - -- Lazard Freres performed a discounted cash flow analysis of the Company based upon... (i) the projected stream of the company's unlevered cash flows for its cellular business through the year 2004, and (ii) the projected terminal value of the Company's cellular business at such year based upon a range of multiples of cash flow in year 2004." EXHIBIT II Financial Assumptions [...which helps explain why Lazard Freres had to use aggressive financial assumptions to arrive at similar values as Paine Webber and Merrill Lynch] - -- Lazard Freres' estimated exit multiples of 12-14x EBITDA in 2004 equate to 9.5-11.5x EBITDA in 2000, based on their assumed discount rates Implied Year 2000 Exit Multiple(1) ------------------------------------------------ Discount Rates ------------------------------------------------ Year 2004 Exit Multiples 11% 12% 13% ------------------------------------------------ 12.0x 10.1x 9.8x 9.5x 13.0 10.8 10.4 10.1 14.0 11.5 11.1 10.7 ------------------------------------------------ - -- Lazard Freres' financial assumptions are not directly applicable to LIN, as projected Notes: (1) Represents the year 2000 exit multiple equivalent to the stated year 2004 exit multiple. EXHIBIT II Cash Flow Projections [The ten-year projections were significantly more conservative than the five-year projections, and particularly conservative in the years 2000-2004] - --------------------------------------- EBITDA ($MM) - --------------------------------------- 5-Year 10-Year Projections Projections(a) - ----------------------------------------------------------------- 1995 268 245 | | | - --------------------------------------- | | | 1996 367 340 | | | - --------------------------------------- | Horizon of | | 1997 464 415 |PaineWebber/ | | - --------------------------------------- |Merrill Lynch | | 1998 540 467 | | | - --------------------------------------- | |Horizon | 1999 659 562 | | of | - -------------------------------------------------------| Lazard | 2000 573 | Freres | - --------------------------------------- | | 2001 571 | | - --------------------------------------- | | 2002 569 | | - --------------------------------------- | | 2003 579 | | - --------------------------------------- | | 2004 584 | | - --------------------------------------- |--------| LIN BROADCASTING Valuation Appraisal February 15, 1995 TABLE OF CONTENTS SECTION I Overview SECTION II Discounted Cash Flow Analysis SECTION III Precedent Transactions SECTION IV Review of Potential Purchasers SECTION V Reconciliation to Public Market Value APPENDIX Additional Information SECTION I SECTION I Overview Tab A OVERVIEW Introduction [Morgan Stanley Charter] Morgan Stanley has been retained by AT&T Corp. ("AT&T") on behalf of its wholly-owned subsidiary McCaw Cellular Communications, Inc. ("McCaw") to determine the Private Market Value of LIN Broadcasting Corporation ("LIN") as defined by the 1989 Private Market Value Guarantee Agreement as amended. "On or about January 1, 1995, the Independent Directors will designate an investment banking firm of recognized national standing and the Offeror [McCaw] will designate an investment banking firm of recognized national standing, in each case to determine the private market value per Share." Private Market Value Guarantee December 11, 1989 OVERVIEW Definition of Private Market Value [The PMVG Agreement is explicit as to the definition of Private Market Value] "...private market value per Share is the private market price per Share (including control premium) that an unrelated third party would pay if it were to acquire all outstanding Shares (including the Shares held by Offeror [McCaw] and its affiliates) in an arm's-length transaction, assuming the Company was being sold in a manner designed to attract all possible participants (including the Regional Bell Operating Companies) and to maximize stockholder value, including if necessary through the sale or other disposition (including tax-free spin-offs, if possible) of businesses prohibited by legal restrictions to be owned by any particular buyer or class of buyers (e.g., the Regional Bell Operating Companies)." Private Market Value Guarantee December 11, 1989 Tab B OVERVIEW Definition of Private Market Value [The Private Market Value definition has been widely misunderstood] Private Market Value Private Market Value IS BY DEFINITION IS NOT BY DEFINITION - -------------------------------- ------------------------ [green check] The price an [red x] The value of LIN unrelated party to McCaw or AT&T would pay for all shares in a value- [red x] LIN's intrinsic maximizing sale value process [red x] The price LIN's - - Any necessary asset sales or public shareholders spin-offs prior to the sale of expect 100% of LIN need be reflected at the after-tax or public trading values, respectively OVERVIEW Basis of Valuation Methodology [In arriving at its valuation view, Morgan Stanley examined the following, among other things:] - -- LIN's intrinsic value implied by LIN management projections. - -- Values implied by precedent transactions. - -- Evaluation of potential unrelated third party acquirors of LIN. - -- LIN's "allocated" purchase price in the context of AT&T's acquisition of McCaw/LIN. - -- PMV price for LIN projected by McCaw in 1992 in the context of its financial planning process. - -- Evaluation of the 1989 contested battle for LIN. - -- Likely public market trading value for LIN absent the PMVG agreement. Tab C OVERVIEW Summary of Valuation Methodologies Private Market Value Price Per Share - ------------------------ ----------------- Analyst Intrinsic Value(1) $101-$120 LIN Management Intrinsic Value(2) $103-$111 "Allocated" AT&T Purchase Price(3) $98-$112 Precedent Transactions(4) $93-$97 McCaw 10/92 Forecasted PMV(5) $113-$117 Public Market Value Current Comparable Company Trading(6) $80-$95 Morgan Stanley PMV Estimate $105 Notes: See next page. OVERVIEW Summary of Valuation Methodologies - Notes Notes: (1) Based on Goldman Sachs, Salomon Brothers and Merrill Lynch projections, using 10.0x-11.0x exit multiples in year 2000 and 13.5% discount rate, and First Boston projections using 9.5x to 10.5x exit multiples in year 2004 and 13.5% discount rate. (2) Based on LIN Base Case excluding Wireless Data, New Features and Long Distance, using 9.5x to 10.5x exit multiples in year 2004 and 13.5% discount rate, plus 25% of McCaw's Wireless Data Division's projections assuming 10.0x year 2004 EBITDA and a 20% discount rate. (3) Based on $16.2Bn projected year-end 1994 cellular asset value at time of announcement, and McCaw and LIN 1994 and 1995 operating projections based on analyst research at time of announcement. (4) Based on $15.2Bn cellular asset value at 9/19/94 closing and McCaw and LIN operating projections based on Salomon Brothers research, September 1994. (5) Based on McCaw Management's assumed 15x 1995A EBITDA multiple to calculate PMV at 12/31/95. Year-end 1995 equity value is discounted back to 2/15/95 at cost of equity of 15.4% and accrued at 7.0% from 2/15/95 to 6/30/95. (6) Based on estimated AirTouch trading multiple of 1995E revenues, EBITDA and POPs (based on range of analyst estimates of international asset values and 2/15/95 closing price). OVERVIEW LIN Summary PMV Valuation [Based on a variety of analyses, Morgan Stanley provided a final view of LIN's PMV of $105 per share] Summary Valuation ($MM) - ----------------------------------------------------------------- Unadjusted $105 Adjusted $105 Per Share Per Share(3) ---------------- -------------- Value of Common Stock(1) $5,597MM $5,597MM Plus: Net Debt(2) 1,398 1,648(3) Total Aggregate Value 6,995 7,245 Less: Other Assets(4) (113) (113) Total Cellular Value $6,882 $7,132 Value as a Multiple of: 17.7x 18.3x 1994A EBITDA ($390MM) 1995E EBITDA 13.3 13.7 ($519MM)(5) 1995P EBITDA ($538MM)(6) 12.8 13.3 POPs (25.7MM) $268 $278 Notes: (1) Represents 51,632,000 common shares outstanding and 1,671,862 options as of 12/31/94. (2) Debt of $1,615MM as of 12/31/94 net of $94MM cash and working capital and $143MM options proceeds, plus $20MM estimated transaction fees. (3) Includes $250MM of potential additional liabilities. (4) Represents WOOD-TV valued at 9.5x 1995E EBITDA of $9.3MM and 1,655,670 shares of AMSC stock valued at 2/15/95 closing price of $14.75. (5) Average of 1995E EBITDA projected by Goldman Sachs (8/4/94), Merrill Lynch (12/21/94), First Boston (1/12/95) and Salomon Brothers (1/5/95). (6) Represents LIN Base Case excluding Wireless Data, New Features and Long Distance. SECTION II SECTION II DISCOUNTED CASH FLOW ANALYSIS Tab D DISCOUNTED CASH FLOW ANALYSIS Section Overview [Discounted cash flow analysis is a useful starting point in assessing what an unrelated third party would pay for LIN, although it does have its limitations] Discounted cash flow analysis is a useful benchmark for valuation, but does not in and of itself necessarily equate to what an unrelated third party would pay for all of LIN. - -- Desire to make positive NPV investments may result in actual bids less than full value suggested by DCF analysis. - -- Financial implications of acquisition may set a binding constraint at values less than full DCF value. - -- Competitive analysis may suggest that, given others' conflicts, etc., one does not need to pay full DCF value in order to prevail in a competitive situation. DISCOUNTED CASH FLOW ANALYSIS Overview of Operating Projections [It is difficult to know with any certainty what projections an unrelated third party would use in its evaluation of LIN] Although there is a relatively tight band of research analyst forecasts, these projections have historically proven to be too aggressive. LIN/McCaw Management projections of Fall 1992 have to date also proven to be far too aggressive as LIN 1993 and 1994 performance has fallen significantly short of those projections. LIN Management's Base Case was not prepared in the ordinary course, was continually enhanced in each successive revision and is more aggressive than LIN's 1992 projections which as noted above have not been met to date. LIN Management's Upside Case is higher than any third party projection available to us and was apparently not given any weight by LB/BS in arriving at their final private market value views. DISCOUNTED CASH FLOW ANALYSIS Overview of Discount Rates and Exit Multiple [The correct range of discount rates is 13% - 14% and the correct range of exit multiples is 9.5x - 10.5x] LIN's current cost of capital is approximately 13.50%. Morgan Stanley believes that an unrelated third party using the most aggressive WACC assumptions would derive rates of 13%-14% and appreciably higher rates for Wireless Data. LB/BS, through a variety of mathematical and methodological errors, arrive at discount rates for all free cash flow streams, including wireless data, of 11%-13%. Using perpetual growth rates of 6.5% to 7.5% as suggested by LB/BS, together with the correct discount rate of approximately 13.5% results in 2004 EBITDA exit multiples of 9.2x - 10.9x, compared to the 10.5x - 12.5x used by LB/BS. Tab E DISCOUNTED CASH FLOW ANALYSIS Review of LIN Management's "Base Case" Projections [LIN Managment's "Base Case" operating projections include significant non-cellular value] Core Cellular Business + Additional Services = LIN Management -- Wireless Data Base Case -- New Features Operating -- Long Distance Projections DISCOUNTED CASH FLOW ANALYSIS Review of Operating Projections [LIN management's Base Case projections were not created in the ordinary course planning process] "LIN Management" in this instance consists of two corporate executives who do not have direct operating responsibility. Projections were not reviewed in any organized manner by the individual market managements. Projections were created recently for the sole purpose of the PMVG process -- not in the ordinary course planning process. DISCOUNTED CASH FLOW ANALYSIS 1992 LIN Projections vs. Actual Results [Although penetration has increased more than expected, revenue/sub/month has fallen such that revenue per POP has been less than previously forecast]
Penetration Revenue/Sub/Month Revenue/POP --------------------------- --------------------------- --------------------------- 1992(2) 1993(2) 1994(2) 1992(2) 1993(2) 1994(2) 1992(2) 1993(2) 1994(2) ------- ------- ------- ------- ------- ------- ------- ------- ------- Actual LIN 2.33% 3.01% 4.25% $93 $87 $83 $23 $28 $37 Downside(1) 2.39% 3.11% 3.72% $93 $87 $82 $23 $29 $33 Base(1) 2.39% 3.13% 3.84% $93 $89 $86 $23 $30 $36 Notes: (1) Represents October 1992 projections, excluding AT&T synergies. (2) Excludes Philadelphia. DISCOUNTED CASH FLOW ANALYSIS 1992 LIN Projections vs. Actual Results [Due to the decline in revenue/sub/month, more subscribers have supported the same revenue base, dramatically depressing margins and causing EBITDA/POP to fall significantly below projected levels] Marketing Revenue EBITDA Margin EBITDA/POP --------------------------- --------------------------- --------------------------- 1992(2) 1993(2) 1994(2) 1992(2) 1993(2) 1994(2) 1992(2) 1993(2) 1994(2) ------- ------- ------- ------- ------- ------- ------- ------- ------- Actual LIN 23% 24% 27% 50% 48% 42% $11 $13 $15 Downside(1) 23% 22% 20% 50% 49% 50% $12 $14 $17 Base(1) 23% 19% 17% 50% 53% 54% $12 $16 $19 Notes: (1) Represents October 1992 projections, excluding AT&T synergies. (2) Excludes Philadelphia. /TABLE DISCOUNTED CASH FLOW ANALYSIS Old LIN Projections vs. Current LIN Projections [Revenue per POP has tracked essentially as predicted, yet future revenue per POP is projected to be well above previous Base Case; EBITDA per POP has fallen well short of projections yet is forecasted to meet previous projections] Revenue/POP EBITDA/POP ---------------------- ---------------------- 1996 1998 2000 2002 1996 1998 2000 2002 ---- ---- ---- ---- ---- ---- ---- ---- LIN Base Case(1) $55 $71 $83 $96 $25 $33 $39 $47 Lin Base Case 57 76 93 102 26 35 45 56 1992 Downside 42 50 59 68 24 29 35 41 1992 Base 48 59 70 81 28 36 44 52 Note: (1) Excludes Wireless Data, New Features and Long Distance. DISCOUNTED CASH FLOW ANALYSIS Review of LIN Operating Projections [LIN Management's projections appear to have numerous inconsistencies -- one simple example is the way they project capital expenditures] LIN Management's projections for capital expenditures are low on two bases: - -- Annual capital expenditures per net customer addition declines in the face of projected increases in subscriber usage. - -- Annual capital expenditures do not seem to factor in replacement cost as the projected net PP&E increases through the year 1998 yet declines thereafter. This forecast is inconsistent with the fundamental assumption of LIN Management that increased revenues will come because "average minutes of use are expected to increase because of lower rates per minute, more user friendly phones, improved quality, longer battery lives and new features and services on the network." PROJECTED CAPITAL EXPENDITURES(1) - ----------------------------------------------------------------- 1996 1998 2000 2002 2004 ---- ---- ---- ---- ---- Net PP&E (MM) $919 $1055 $991 $784 $461 NET PP&E per SUB ($) $444 $365 $270 $180 $96 Note: (1) LIN base case projections exclude Wireless Data, New Feature and Long Distance. Tab F DISCOUNTED CASH FLOW ANALYSIS Weighted Average Cost of Capital [The defining elements of a company's WACC are the company's asset beta, target leverage and corresponding cost of debt] Components of a WACC - ----------------------------------------------------------------- Component Comment - -------------------- --------------------------------------- Risk-Free Rate 10-year U.S. Treasury (7.44% - 2/15/95) Market Risk Premium 7.22% (calculated by Ibbotson Associates, 1994 Yearbook) Asset Beta LIN's specific equity beta, adjusted for existing capital structure Target Capitalization Likely capitalization to be employed by third party acquiror Relevered Beta Asset Beta adjusted for target capitalization Cost of Debt Consistent with assumed target capitalization DISCOUNTED CASH FLOW ANALYSIS Weighted Average Cost of Capital [LIN's asset beta has historically been between .95 and 1.05] Historical Predicted Asset Beta(1) ---------------------------------- Jan-1993 0.94 Apr-1993 0.97 Jul-1993 1.01 Oct-1993 1.05 Jan-1994 1.03 Apr-1994 1.02 Jul-1994 0.96 Oct-1994 1.00 Jan-1995 0.98 Note: (1) Equity betas from BARRA, U.S. Equity Beta Book, January 1995. DISCOUNTED CASH FLOW ANALYSIS Third Party Acquiror Cost of Capital [While LIN's WACC is 13.55%, the WACC based on credit-neutral capitalization for these potential acquirors averages 14%, although one could rationalize rates as low as 13%]
Implied WACC(1) Based on Capital Capital Structure Structure of: -------------------- --------------------------------------- Cost of Current Target(2) Debt Debt/ Debt/ Company Rating (Spread) Mkt Cap Mkt Cap Acquiror(3) Target(4) Cellular(5) - ---------------- ------ -------- -------- --------- ----------- --------- ----------- Ameritech AA+/Aa2 0.40% 21.5% 5.0% 13.39% 14.25% 13.55% Bell Atlantic A+/A1 0.60% 27.8% 9.0% 13.07% 14.05% 13.55% BellSouth AAA/Aa1 0.40% 23.1% 5.0% 13.30% 14.25% 13.55% NYNEX A/A3 0.60% 38.4% 9.0% 12.54% 14.05% 13.55% Pacific Telesis A+/A1 0.50% 28.5% 9.0% 13.03% 14.05% 13.55% SBC Communications A/A1 0.55% 22.9% 9.0% 13.33% 14.05% 13.55% US West AA-/A1+ 0.50% 28.1% 9.0% 13.05% 14.05% 13.55% GTE Corporation BBB+/A2 0.65% 32.0% 15.0% 12.88% 13.75% 13.55% Sprint Corp. BBB/Ba2 0.70% 33.0% 15.0% 12.84% 13.75% 13.55% MCI Communications(6) A-/A1 0.60% 18.2% 9.0% 13.58% 14.05% 13.55% ----- ----- ------ ------- ------- Median 28.1% 9.00% 13.05% 14.05% 13.55% Notes: (1) WACCs assume risk-free rate of 7.44%, 7.22% market risk premium, and 38% tax rate. (2) Represents maximum leverage capacity in cellular industry based on LIN's operating statistics in order to maintain acquiror's current rating. (3) Represents WACC assuming .98 asset beta, and cost of debt (based on premium to 10-year UST) and debt/mkt cap of the acquiror. (4) Represents WACC assuming .98 asset beta, cost of debt of acquiror (based on premium to 10-year UST) and debt/mkt cap of target. (5) Represents WACC assuming LIN's cost of debt (10.0%) and levered beta (1.10), and 20% debt/mkt cap. (6) MCI debt and market cap are not net of cash. DISCOUNTED CASH FLOW ANALYSIS Target Capitalization [A single-A rated third-party acquiror, that finances the acquisition of LIN so as to be credit neutral, would be unlikely to debt finance more than 10% of the purchase price] Cellular Credit Stats (S&P) - ---------------------------------------------------------------------------------------------------------- Rating of Third-Party Standard Acquiror ----------------------------- --------------------------- Statistic LIN 1994 AA A BBB AA A BBB - -------------- -------- ------ ------- ------- ------ ------ ------- Implied Debt/Mkt Cap(1)(2) ---------------------------- Debt/Book Cap(3) 21.5% <20% 20%-30% 30%-40% 20.0% 30.0% 40.0% Cons. EBIT/Int 1.8 >10x 6x-10x 3x-6x 3.8% 6.1% 11.6% Cons. EBITDA/Int 3.1 >15x 8x-15x 4x-8x 4.2% 7.6% 14.2% Debt / POP $63 <$10 $10-$15 $15-$20 4.4% 6.5% 8.5% Debt / Sub 1,478 <$400 $400-$700 $700-$1000 7.3% 12.2% 16.5% ----- ----- ----- Target 5.0% 9.0% 15.0% Notes: (1) Assumes high end of debt range. (2) Based on $105 per share. (3) Assumes book equity equals market equity. DISCOUNTED CASH FLOW ANALYSIS WACC Estimate - Assumed Leverage [At 35% debt to capital, LIN would most likely be no better than a CCC credit] EBIT/ EBITDA/ Debt/ Debt/ Rating Interest Interest EBITDA POP ------ -------- -------- -------- ------ S&P Cellular Rating Guidelines - July 1994 - ---------------------------------------------------------------------------------------------------------- AA 10+ 15+ N.M. below 10 A 6-10 8-15 N.M. 10-15 BBB 3-6 4-8 below 2.5 15-20 BB 1.5-3 2-4 2.5-6 20-50 B below 1.5 below 2 above 6 50+ LIN Broadcasting - Current Capitalization - ---------------------------------------------------------------------------------------------------------- Proportionate 12/31/94(1) 2.23 3.61 4.01 63 Implied Rating BB BB BB B Consolidated 12/31/94(2) 1.85 3.11 4.65 63 Implied Rating BB BB BB B LIN Broadcasting - 35% Debt/Capital (Proportionate)(3) - ---------------------------------------------------------------------------------------------------------- Proportionate at $105/share PMV 0.91 1.47 6.19 97 Implied Rating Estimate CCC B/CCC B B/CCC Proportionate at $155/share PMV 0.66 1.07 8.51 133 Implied Rating Estimate CCC CCC B/CCC CCC Notes: (1) Reflects proportionate results as reported for 1994. (2) Reflects consolidated results, excluding equity interest in unconsolidated affiliates. (3) Assumes cost of debt at 11% for both $105/share and $155/share examples. DISCOUNTED CASH FLOW ANALYSIS Analyst WACCs vs. 10-Year UST [Analyst discount rates range from 12.0-13.5%, although they do not appear to have a precise theoretical basis for calculating WACCs, as their WACCs appear to stay constant despite dramatic changes in the risk-free rate]. The following information is depicted on a single graph: 10-Year Date UST Yield DLJ Goldman(1) First Boston Merrill Lynch(2) - ---------------------------------------------------------------------------------------------------------- Jan-92 0.0703 0.1325 Feb-92 0.0734 0.1094 Mar-92 0.0754 Apr-92 0.0748 May-92 0.0739 Jun-92 0.0726 Jul-92 0.0684 Aug-92 0.0659 Sep-92 0.0642 Oct-92 0.0659 Nov-92 0.0687 0.135 Dec-92 0.0677 Jan-93 0.066 Feb-93 0.0626 Mar-93 0.0598 Apr-93 0.0597 0.12 May-93 0.0604 Jun-93 0.0596 0.12 Jul-93 0.0581 0.1325 Aug-93 0.0568 Sep-93 0.0536 Oct-93 0.0533 Nov-93 0.0572 Dec-93 0.0577 Jan-94 0.0575 Feb-94 0.0597 Mar-94 0.0648 Apr-94 0.0697 0.12 0.135 May-94 0.0718 Jun-94 0.071 Jul-94 0.073 Aug-94 0.0724 0.135 Sep-94 0.0746 Oct-94 0.0774 Nov-94 0.0796 Dec-94 0.0781 0.1325 0.1094 Jan-95 0.0778 0.1325 0.1177 Notes: (1) Represents midpoint of estimated 12-15% range. (2) Represents Linda Runyon at Kidder Peabody (1992) and Merrill Lynch (1994). WACC based on IRR of stated cellular asset value and unlevered free cash flows. DISCOUNTED CASH FLOW ANALYSIS WACC Calculation - Lehman/Bear Stearns Estimate [Lehman/Bear Stearns understate the proper WACC for LIN, even using their own assumptions] Lehman/Bear Stearns Comments Corrected - ---------------------------------------------------------------------------------------------------------- Industry LIN 35% Debt/ 20% Debt/ Capital Capital - ---------------------------------------------------------------------------------------------------------- Predicted Equity Beta .98 - 1.13 Must use LIN's specific beta 1.10 1.10 Predicted Asset Beta(1) .79 - .99 Must calculate asset beta 0.98 0.98 Target Leverage 35.0% - 35.0% Observation: 35% leverage is 35.0% 20.0% higher than any cellular company or RBOC Relevered Equity Beta 1.04 - .99 And relever for assumed 1.29 1.12 leverage Risk-Free Rate 7.86% 7.44% 7.44% Risk Premium 7.22% 7.22% 7.22% Cost of Equity 15.37 - 15.01% Must use relevered equity 16.78% 15.56% (Calculated) beta to calculate cost of equity =Rf + [symbol Beta] x (Risk Premium) Cost of Equity 14.00 - 16.00% (Stated) Cost of Debt 9.00 - 11.00% Cost of debt must be consistent 11.00- 9.50- with target leverage -- at 35% 13.00% 11.50% debt/cap, LIN would likely be no better than a CCC credit WACC - 11.00 - 13.00% (Stated) WACC - (Calculated) 11.65 - 12.30% 13.22 - 13.59 - 13.64% 13.83% - ------------------------------------------------------------------------------------------------------------ Note: (1) Assumes 17.1% debt/total capitalization for LIN based on share price of $140.50 (2/15/95) and net debt of $1,537MM at 12/31/94. DISCOUNTED CASH FLOW ANALYSIS WACC Estimate [Morgan Stanley's views on WACC are consistent with those of other financial advisors employed to value cellular properties] Change in 10-Yr. UST Firm Date Stated WACC Since Opinion Adjusted WACC - ----------------------------- -------- ------------ ------------- --------------- Salomon Brothers (AT&T/McCaw) 08/16/93 11.00 - 13.00% 1.76% 12.56 - 14.56% Lazard Freres (AT&T/McCaw) 08/15/93 10.00 - 12.00% 1.76% 11.56 - 13.56% Paine Webber (GTE/Contel) 12/27/94 13.00 - 15.00% -.32% 12.72 - 14.72% Merrill Lynch (GTE/Contel) 12/27/94 12.00 - 14.00% -.32% 11.72 - 13.72% ---------------- Average 12.14 - 14.14% Morgan Stanley 02/09/95 13.00 - 14.00% Lehman/Bear Stearns - Adjusted @ 35% 02/09/95 13.22 - 13.64%(1) Lehman/Bear Stearns - Adjusted @ 20% 02/09/95 13.59 - 13.83%(2) Notes: (1) Reflects adjustments based on LIN asset beta of 0.98, 7.44% risk-free rate, 7.22% market risk premium, 35% debt/capital, and cost of debt of 11.0-13.0% (pre-tax). (2) Reflects adjustments based on LIN asset beta of 0.98, 7.44% risk-free rate, 7.22% market risk premium, 20% debt/capital, and cost of debt of 9.50-11.50% (pre-tax). /TABLE Tab G DISCOUNTED CASH FLOW ANALYSIS Exit Multiples [A perpetual free cash flow growth rate estimate of 6.5% appears consistent with the long term fundamentals of the cellular business as well as with analyst estimates -- nevertheless 7.0%, which is consistent with Lehman/Bear Stearns, discounted at the appropriate WACC, yields exit multiples of 9.3x-10.8x] Implied Exit Multiple of 2004 EBITDA(1)(2) - ----------------------------------------------------------------- Discount Rate ------------------------------ 13.00% 13.50% 14.00% ------ ------ ------ 4.0% 7.0 6.6 6.3 4.5% 7.4 7.1 6.7 5.0% 8.0 7.5 7.1 Perpetual 5.5% 8.5 8.0 7.6 Growth Rate 6.0% 9.2 8.6 8.1 of FCF 6.5% 9.9 9.2 8.6 7.0% 10.8 10.0 9.3 7.5% 11.8 10.9 10.1 8.0% 13.1 11.9 11.0 Notes: (1) Assumes FCF/EBITDA ratio of 57% in perpetuity. (2) Represents multiple of trailing EBITDA, based on FCF x (1 + growth rate) x (1 + WACC) ^0.5/(WACC - growth rate). DISCOUNTED CASH FLOW ANALYSIS Analyst Estimates of Exit Multiples [Analysts use 6.0-7.0% as perpetual growth rate -- however, their average year of application is 2000 -- in 2004 the perpetual growth rate should be appropriately lower] Implied Perpetual Growth - ---------------------------------------------------------------- Implied Stated Stated Perpetual Exit Discount FCF Firm Exit Year Multiple Rate(1) Growth(2) - -------------- --------- -------- -------- --------- Salomon 2000 11.0x 10.80% 5.07% Paine Webber 2000 12.0 10.80 5.52 Merrill 2000 11.0 11.77(3) 5.96 DLJ 1999 12.0 12.00 6.64 Gerard Klauer N.A. 13.5 11.60 6.83 First Boston 2004 N.A. 13.25 7.00 Nomura 2000 12.0 12.50 7.10 Goldman Sachs 2000 12.0 13.50 8.03 Median 2000 6.74% Notes: (1) Represents estimated theoretical WACC for analysts who only give equity discount rates, assuming 20% debt/capital, 10% cost of debt. (2) Assumes Free Cash Flow = 57% of EBITDA. Assumes mid-year discounting. (3) Based on IRR of stated asset value as of 12/31/94 and estimated unlevered free cash flows. DISCOUNTED CASH FLOW ANALYSIS Exit Multiples [Morgan Stanley's views on exit multiples are consistent with other financial advisors' views employed to value cellular properties]
Terminal Multiples ---------------------------------------------------- Firm Date 1999 2000 2002 2004 - -------------------- ----------- ---- ---- ---- ---- Financial Advisors Paine Webber(1) 12/27/94 10.5 - 12.5x [10.2 - 12.3x] Merrill Lynch(1) 12/27/94 10.0 - 12.0x [9.6 - 11.7x] Lazard Freres 08/16/93 [9.7 - 11.6x] 9.0 - 11.0x Salomon Brothers 08/16/93 [10.6 - 11.6x] 10.0 - 11.0x Average 10.0 - 11.8x Appraisers Morgan Stanley(2) 02/09/95 [9.9 - 10.9x] [9.4 - 10.2x] 9.5 - 10.5x Lehman Bros./Bear Stearns(3) 02/09/95 [11.7 - 13.5x] [10.7 - 12.5x] 10.5 - 12.5x *Non-bracketed data represents stated amount. [Bracketed] data is implied. Notes: (1) Represents terminal multiple for five-year projection, which the advisors "relied more heavily on". (2) Based on Base Case forecast and 13.50% discount rate for base cellular, excluding data, new features, and long distance. (3) Based on Base Case forecast and 12.00% discount rate for cellular, new features, and long distance, excluding data. Tab H DISCOUNTED CASH FLOW ANALYSIS Summary of DCF Values(1) [Using LIN's Base Case excluding Wireless Data, New Features and Long Distance with discount rates of 13% - 14% and EBITDA exit multiples of 9.5x - 10.5x yields values of $93-$110 per share] Discount Rate 13.00% 13.50% 14.00% ---------------------- ---------------------- --------------------- EBITDA Exit Multiple 9.5x 10.0x 10.5x 9.5x 10.0x 10.5x 9.5x 10.0x 10.5x Implied FCF Perpetual Growth Rate 5.9% 6.2% 6.5% 6.3% 6.7% 7.0% 6.8% 7.1% 7.4% Value per Share $102 $106 $110 $98 $102 $106 $93 $97 $101 Multiple of 1994A EBITDA(2) 17.2x 17.8x 18.3x 16.6x 17.1x 17.7x 16.0x 16.5x 17.1x Multiple of 1995E EBITDA(3) 12.9x 13.4x 13.8x 12.5x 12.9x 13.3x 12.1x 12.5x 12.8x Multiple of 1995P EBITDA(2) 12.5x 12.9x 13.3x 12.0x 12.4x 12.8x 11.6x 12.0x 12.4x Notes: (1) Values as of 2/15/95. (2) EBITDA before headquarters expense. 1995 figure is LIN Base Case excluding Wireless Data, New Features and Long Distance. (3) Average projection of $519MM based on Goldman Sachs (8/4/94), Merrill Lynch (12/21/94), First Boston (1/12/95)and Salomon Brothers (1/15/95). DISCOUNTED CASH FLOW ANALYSIS LIN Base Case vs. Analysts [LIN Management's "unadorned" projections are consistent with analyst estimates which in turn include AT&T value-added] EBITDA/POP DA-CapEx)/POP --------------------------------------- --------------------------------------- 1995 1996 1997 1998 1999 2000 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- LIN Base Case "Unadorned"(1) $21 $25 $29 $33 $36 $40 $9 $14 $19 $26 $29 $34 Analyst Average(2) $20 $25 $30 $35 $39 $44 $9 $14 $23 $25 $29 $39 Notes: (1) LIN Base Case excluding Wireless Data, Long Distance and New Features. (2) Represents average of Goldman Sachs (8/4/94), Merrill Lynch (12/21/94) and First Boston (1/12/95).
DISCOUNTED CASH FLOW ANALYSIS Analyst's PMVs and DCF Values [Adjusted for appropriate discount rates and exit multiples, analysts' projections yield DCF values of $101 to $120 per share, consistent with the valuation of the LIN Base Case] Recalculated DCF PMV DCF Value Value as of Firm Estimate(1) as of 6/30/95(2) 2/15/95(3) - --------------- ---------- ---------------- ------------ Goldman Sachs $155 $137 $115 Salomon Brothers(4) 145 140 114 Merrill Lynch 139 129 114 First Boston 150 160 105 LIN Base Case Unadorned 102 Notes: (1) Latest PMV estimate as of 2/15/95. (2) Represents midpoint of analysts' stated DCF values, adjusted to 6/30/95 using analysts' costs of capital. (3) Calculations assume a 13.5% WACC and 10.5x EBITDA in year 2000 (Goldman, Salomon, Merrill) and 10.0x EBITDA in year 2004 (First Boston). (4) Assumes LIN Base case unadorned capital expeditures and depreciation, since no capital expenditures figures provided. DISCOUNTED CASH FLOW ANALYSIS Other Projected Revenue Streams [LIN Management's "Base Case" includes other revenue streams for which potential buyers are unlikely to assign significant value] Wireless Data - -- Appropriately valued, wireless data opportunities represent only a potential $5 - $6 of value per share. - -- Given likely buyers' experience with wireless data, it is unlikely that they will assign significant value. - -- LIN's Management acknowledges their bias towards the future of wireless data. Other Features - -- Includes "yet to be identified" features. - -- Would represent only an additional $3 of value. Long Distance - -- Strategic buyers unable to capitalize on this revenue stream. DISCOUNTED CASH FLOW ANALYSIS Detailed Review of Wireless Data Projections [LIN Management's projections for Wireless Data are very aggressive, compared to common industry assumptions and even McCaw's own Wireless Data Division projections for LIN] LIN Management's Wireless Data forecasts are inconsistent with McCaw's WDD projections - -- LIN markets forecasted to be 50% of total McCaw/LIN wireless data revenue by year 2000 - -- WDD believes LIN markets should be half that amount LIN's Wireless Data assumptions are extremely aggressive and appear to have no grounding - -- Penetration assumptions are aggressive - -- Pricing assumptions are almost impossible to achieve Wireless Data history in marketplace has not been successful to date - -- IBM's Ardis has not been successful - -- BellSouth's RAM Mobile Data has had significant setbacks, and has not delivered on its initial promise - -- Ameritech, among others, have had significant delays with respect to CDPD launches Note: (1) Based on WDD Business Plan, October 18, 1994. DISCOUNTED CASH FLOW ANALYSIS Wireless Data Value(1) [LIN Management's aggressive views of Wireless Data, as represented by their Base Case, imply significantly higher values than do McCaw's own estimates of data -- a service to which a third-party bidder would likely attribute nominal value] Value per Total Value LIN Share ($) ($MM) -------------- ------------- LIN BASE CASE - ------------- 11.5x 2004 EBITDA 12.00% WACC $25.56 $1,362 10.0x 2004 EBITDA 20.00% WACC $11.87 $633 LIN's 25% of McCaw WDD Business Plan - ------------------------------------ 10.0x 2000 EBITDA 20.00% WACC $5.66 $322 MS Estimate of Third-Party Bidder's View - ---------------------------------------- N.M. N.M. Note: (1) Values as of 2/15/95. SECTION III SECTION III PRECEDENT TRANSACTIONS Tab I PRECEDENT TRANSACTIONS Introduction [Since the PMV definition is what LIN will "fetch" as opposed to what it may theoretically be worth, precedent tranactions are the single most relevant method of determining PMV] Prices paid in precedent cellular [blue arrow Buyer DCF transactions represent empirical pointing Value evidence as to the totality of right] factors considered by sophisticated buyers in competitive bidding situations. [blue arrow pointing diagonally down to left] - -- What is appropriate business case to construct - -- What are the appropriate discount rate and exit multiples - -- What are available synergies Buyer DCF Values in turn are [blue arrow Observed affected by pointing Purchase - -- Strategic value right] Price Paid - -- Competitive situation in - -- Financial implications Precedent Transactions PRECEDENT TRANSACTIONS Precedent Cellular Transactions [Even in the most robust period for cellular valuations, few if any cellular properties were ever sold for $300 per POP...]
Selected Precedent Cellular Transactions--per POP Benchmarks - ----------------------------------------------------------------------------------------------------------- Date Aggregate Cellular Announced Acquiror Acquiree Type of Deal Value Value/POP - --------- --------------- ------------------ ------------ ($MM) --------- ----------- Dec 94 GTE Contel Cellular 10% Stake $460 $198 Nov 94 SNET Bell Atlantic/NYNEX (New England Property) Acquisition 450 199 Oct 94 LIN CSI (New York cellular) 5% Stake 145 185 Jul 94 AirTouch US West Joint Venture 13,500 N.M. Jun 94 Bell Atlantic NYNEX Joint Venture 13,000 N.M. Feb 94 SBC Comm. Associated Comm. Acquisition 680 187 Nov 93 SBC Comm. GTE (Dallas cellular) 10% Stake 124 280 Nov 93 SBC Comm. Syracuse Cellular Acquisition 215 160 Aug 93 AT&T McCaw Cellular Acquisition 17,616 268 Mar 92 Comcast Metromedia (Philadelphia) Acquisition 1,100 214 Sept 91 Bell Atlantic Metro Mobile Acquisition 2,375 204 May 90 LIN Metromedia (New York cellular) 48% Stake 1,941 275 Sep 89 McCaw LIN Deferred Purchase 7,400 285 PRECEDENT TRANSACTIONS Precedent Cellular Transactions [In the past two years EBITDA multiples have become the standard measure of calibrating private market deals -- all of these transactions have been clustered at or below 13x 1995 EBITDA] Selected Precedent Cellular Transactions -- EBITDA Multiple Benchmark - --------------------------------------------------------------------------------------------------------- Aggregate Cellular Value/EBITDA Date Closed Acquiror Acquiree Type of Deal Value --------------------- - ----------- --------------- --------------- ------------ ($MM) 1994 1995 --------- ---- ---- Pending GTE Contel Cellular 10% Stake $460(1) 19x(1) 13x(1) Dec 94 SBC Comm. Associated Comm. Acquisition 699 17(2) 13(3) Sep 94 AT&T McCaw Cellular Acquisition 16,805 16 13(3) Nov 93 SBC Comm. GTE (Dallas Cellular) 10% Stake 124 13(4) 10(3) Notes: (1) Pending. Based on announced value. (2) Based on Associated Proxy Statement. (3) Assumed 25% growth in EBITDA. (4) Assumes revenues 150% of LIN's Dallas market revenues and a 35% EBITDA margin. /TABLE Tab J PRECEDENT TRANSACTIONS The AT&T/McCaw Transaction [The single most relevant precedent transaction in determining the PMV of LIN is undoubtedly AT&T's acquisition of McCaw since...] [green check] Approximately 20% of the cellular assets acquired was McCaw's 52% stake in LIN Broadcasting. [green check] At $17Bn, it is the only recent acquisition which is reflective of the substantial size of LIN. [green check] McCaw's financial operating characteristics are quite similar to LIN's. PRECEDENT TRANSACTIONS The AT&T/McCaw Transaction [...however, even this transaction precedent has its limitations] [red x] AT&T was prepared to pay for synergies no other unrelated third party could pay for. [red x] AT&T was able to account for the transaction as a pooling of interests, while an unrelated third party would need to utilize purchase accounting treatment to buy LIN. [red x] Interest rates have risen 176 basis point since announcement, which overwhelms the fact that an acquisition of LIN's 48% stake would not likely close until Spring 1995. [red x] The cellular industry has underperformed research analyst projections in the period since announcement. LIN itself has underperformed the LIN Management's projections prepared in October 1992, with revenue being only 98% and EBITDA being only 83% of projections to date. [red x] The period since announcement has also seen the formation of significant strategic alliances whose partners are operators in LIN's four markets: Bell Atlantic/NYNEX, Airtouch/US West, GTE/SBC (Texas markets). These alliances have two important factors: - increased competition in LIN's markets, and - lessened third party interest due to conflicts. PRECEDENT TRANSACTIONS The AT&T/McCaw Transaction [It is important to fully understand the context of the AT&T/McCaw transaction given its importance as the most relevant precedent] From the initial November 1992 investment until announcement, AT&T's stock increased 45%, allowing AT&T to use a "fully valued" acquisition currency. Given the required regulatory approvals, the transaction was expected to close late in the third quarter of 1994 with the "drop dead" date of September 1994, anticipating the timing of regulatory approvals -- the deal was priced accordingly. In the due diligence process, AT&T was not given access to any non-public McCaw projected financial data, and as a result relied heavily on research analyst revenue and EBITDA estimates through year-end 1994. To the extent McCaw without LIN was deemed to be of lessened strategic importance to AT&T, the converse was equally true. That it, LIN without McCaw was of questionable strategic value. Accordingly, to the extent a "strategic premium" existed it was equally allocated to all properties. PRECEDENT TRANSACTIONS AT&T Stock as Currency in McCaw Transaction [One principal reason AT&T was able to pay a nominal value of approximately $60 per McCaw share was the almost 50% run-up in its share price from the November 1992 announcement] [Graph depicting daily indexed price of AT&T common stock and the S&P 500 from October 1, 1992 to February 15, 1995 shows indexed price of AT&T rising to approximately 150 in August 1993 and subsequently declining to approximately 120 February 15, 1995, while the indexed price of the S&P 500 increased only modestly over the same, never exceeding 120.] PRECEDENT TRANSACTIONS The AT&T/McCaw Transaction [In August 1993, AT&T's expected 1994 purchase price was estimated to be as much as $16.2Bn -- at closing, the actual price paid was $15.2Bn]
Announcement (Aug 16, 1993) Closing (Sept 19, 1994) - ----------------------------------------------------- -------------------------------------------- Equity Value: Equity Value: Projected share price at closing(1) $64.386 Share price at closing (9/19/94) $55.000 Fully diluted shares outstanding(2) 202,000 Fully diluted shares outstanding(2) $208,800 ------- -------- Total Equity Value $13,005 Total Equity Value $11,484 Plus: Plus: Projected proportionate Proportionate debt (9/30/94)(4) 5,321 year-end 1994 debt(3)(4) 4,610 Less: Less: Projected net working capital (256) Net working capital 73 McCaw other assets (paging and other)(3) (661) McCaw other assets (paging and other)(5) (954) 52.5% of LIN TV (291) 52.5% of LIN TV and other(6) (380) Options proceeds (220) Options proceeds(7) (305) -------- -------- Cellular Asset Value $16,187 Cellular Asset Value $15,239 Notes: (1) Based on $58.000 price on 8/23/93, 12.3% cost of equity at announcement, 2% AT&T dividend yield, and 10.1% implied annual share price appreciation for 13 months. (2) Excludes 14.5MM AT&T shares previously purchased. (3) Source: DLJ, July 1993. (4) Includes additional $400MM of indebtedness to reflect previous AT&T investment in McCaw. (5) Represents Hong Kong cellular at $243MM (1.62MM POPs at $150/POP), Mexico cellular at $35MM (0.88MM POPs at $40/POP), Columbia cellular at $33MM (1.1MM POPs at $30/POP), paging at $273MM (682,000 pagers at $400/pager) and Claircom at $370MM (capital invested as of 9/30/94). Source: McCaw estimates. (6) Represents 1.656MM shares AMSC stock at 9/30/94 price of $16.00/share, WOOD-TV at 10.0x 1994 EBITDA of $8.3MM and LIN TV at 10.0x 1994 EBITDA of $80.2MM less debt of $187.9MM. (7) Actual McCaw options exchanged for AT&T options. PRECEDENT TRANSACTIONS The AT&T/McCaw Transaction [At announcement, AT&T's expected 9/94 purchase price of $16.2Bn implied an acquisition price at 9/94 for the LIN shares of $98 - $112 -- based on the actual closing purchase price, the actual "allocated" price for the LIN shares was $93-$97] Announcement(1) Closing ----------------------------------------- ----------- First Boston DLJ Goldman Salomon(2) (7/93) (7/93) (11/92) (9/94) ------------ --------- --------- ---------- Estimated Analyst Transaction Multiples - --------------------------------------- 1994E Revenue 8.4x 8.0x 9.2x 6.9x 1994E EBITDA(3) 17.9 15.1 17.9 16.1 1995E Revenue NA 6.6 8.2 5.3 1995E EBITDA(3) NA 11.9 15.3 11.3 POPs $268 $268 $268 $247 Implied LIN Share Price Given LIN Analyst Estimates(4) - ------------------------------------------------------ 1994E Revenue $103 $100 $102 $97 1994E EBITDA(3) 111 108 112 96 1995E Revenue NA 98 101 93 1995E EBITDA(3) NA 104 111 95 Average $107 $103 $106 $95 POPs 106 106 106 95 Notes: (1) Analyst estimates are adjusted to exclude Philadelphia. (2) Estimated is adjusted to include additional 5% of New York and exclude Philadelphia for entire year. (3) EBITDA is before corporate overhead. (4) Based on analysts' estimates of LIN's 1994 and 1995 operating statistics. /TABLE Tab K PRECEDENT TRANSACTIONS Using Precedent Transactions to Imply Sale Values for LIN [In comparing precedent transactions to LIN, one must first "adjust" the precedent sale price up or down as the case may be to reflect any changes in circumstance from the time the precedent deal was struck to the present] Adjustments to precedent sale prices are a function of differential: - -- Closing Dates - -- Discount Rates - -- Business Case [blue arrow pointing down] In comparing the AT&T/McCaw deal to LIN the first level analysis is to determine: "Based on all the changed circumstances since AT&T agreed to purchase McCaw, what would the sale price likely be today if AT&T were to now agree to acquire McCaw with a closing expected in Spring 1995?" PRECEDENT TRANSACTIONS Using Precedent Transactions to Imply Sale Values for LIN (continued) [Based on all information available, it appears that McCaw's sale value today would be the same or less than when the original deal was agreed to] AT&T/McCaw Evaluation Date Expected Closing - ---------- --------------- ---------------- Actual Summer 1993 Fall 1994 "Adjusted" Winter 1995 Spring 1995 Directional Factor Changes Adjustment Magnitude - ------ ------- ----------- --------- Closing Date 6-9 months later [arrow pointing up] 10% Discount Rate Rates 177 basis [arrow pointing 10-20% points higher down] Business Case Actual results [arrow pointing ? less than right and left projected and arrow pointing down] PRECEDENT TRANSACTIONS Consistent Application of Transaction Multiples [Precedent multiples are simply ratios designed to normalize sale values for differential financial performance and thus must be consistently applied] Adjusted Precedent Sale Price = Implied LIN Value [large - ----------------------------- ----------------- green Precedent Company 1994 EBITDA LIN 1994 EBITDA check] Adjusted Precedent Sale Price = Implied LIN Value [large - ----------------------------- ----------------- green Precedent Company 1995 EBITDA LIN 1995 EBITDA check] Adjusted Precedent Sale Price [does Implied LIN Value [large - ----------------------------- not ----------------- red x] Precedent Company 1994 EBITDA equal] LIN 1995 EBITDA PRECEDENT TRANSACTIONS Applying the AT&T/McCaw Transaction to LIN [Perhaps the best way to illustrate the fallacy of the "closing year" cash flow multiple methodology is to use an example] - -- Lehman Brothers/Bear Stearns state: "A multiple of 1994E EBITDA for the AT&T/McCaw transaction is comparable to a multiple of 1995E EBITDA for the LIN PMVG appraisal as each is a multiple of a "closing year cash flow." - -- In practice, this would suggest that at a 17.5x "closing year" multiple, LIN was worth $104 per share if sold in 1994 and $154 if sold in 1995 -- a 48% increase in equity value simply by waiting for calendar year 1995 to arrive. "1994 Closing" "1995 Closing" -------------- -------------- Closing Year EBITDA $390 $535 * Closing Year Multiple 17.5x 17.5x = Closing Year Asset Value $6,822 $9,356 - - Closing Year Net Debt (1,265) (1,124) ------- ------- = Closing Year Equity Value 5,556 8,231 / Closing Year Shares Outstanding 53.3 53.3 = Per Share Equity Value $104 $154 % Increase 48% Tab L PRECEDENT TRANSACTIONS Allocation of the Purchase Price between McCaw and LIN [Financial/operating performance is the single best measure of a cellular property's value] Market demographics are helpful in considering the relative attractiveness of properties in the absence of any meaningful operating history. However, after almost a decade of operating history and more than one million subscribers, the relative attractiveness of the LIN markets is best captured by examining its actual operating performance. On this basis, McCaw's markets are every bit as attractive as LIN's markets. PRECEDENT TRANSACTIONS Comparing McCaw to LIN: Relative Cellular Subscriber Growth 3Q 1994 vs. 3Q 1993 [Notwithstanding its large market focus, LIN's penetration levels and subscriber growth rates are below many of its peers as well as McCaw] [Graph depicting the extent of market penetration versus the increase in market penetration from the third quarter of 1993 to the third quarter of 1994 for public cellular companies, RBOCs, LIN and McCaw] [Graph depicting the extent of market penetration versus rates of subscriber growth from the third quarter of 1993 to the third quarter of 1994 for public cellular companies, RBOCs, LIN and McCaw] PRECEDENT TRANSACTIONS Comparing McCaw to LIN: Operating Performance [Close examination of the actual operating performance of McCaw and LIN shows that the properties are indeed quite comparable] The true measures of a property's value is its operating performance, not its demographics. Despite being concentrated in large markets, LIN's POPs have not demonstrated significantly superior operating performance to those of McCaw. LTM 6/30/94 McCaw (Only) LIN (ex Phil.) % Premium - ---------------- ------------ -------------- --------- Penetration 3.66% 3.57% -2% Revenue/Sub/Month $82 $85 4% Marketing as % 25% 25% 1% of Revenue EBITDA/Sub/Month $35 $38 9% EBITDA Margin 42% 44% 5% Revenue/POP $30.00 $30.91 3% EBITDA/POP $12.62 $13.64 8% PRECEDENT TRANSACTIONS Comparing McCaw to LIN: Market Size [As further confirmation that market size alone does not translate into superior operating performance, one need look no further than LIN's own markets] Revenue/POP EBITDA/POP -------------------- ------------------- 1994 1995(1) 1994 1995(1) ------ --------- ------ -------- Houston $42.19 $55.17 Houston $19.14 $26.82 Dallas $41.38 $53.17 Dallas $17.07 $23.29 LA $37.29 $46.61 LA $17.74 $23.34 NY $33.56 $41.95 NY $13.53 $18.94 Note: (1) LIN Base Case forecast. PRECEDENT TRANSACTIONS Comparing McCaw to LIN: EBITDA Growth Rates [An EBITDA multiple is principally a function of projected EBITDA growth. On this basis, McCaw has historically grown and is projected to grow at a faster rate than LIN, and should accordingly command an EBITDA multiple at least equal to, or greater than, that applied to LIN] Year-to-Year Growth ------------------- McCaw LIN POP McCaw EBITDA/POP (Alone) LIN(2) Premium (Alone) LIN(2) - ---------- ------- ------ ------- ------- ------- 1991 $6.27 $9.03 44.0% 1992 9.02 11.26 24.8% 43.9% 24.7% 1993 11.69 13.30 13.8% 29.6% 18.1% 1994E(1) 15.20 15.38 1.2% 30.0% 15.6% Notes: (1) Based on 9/30/94 Salomon Brothers research report estimate. (2) Excludes Philadelphia in every year and includes additional New York interest for second half of 1994. PRECEDENT TRANSACTIONS Comparing McCaw to LIN: Market Classification and Control [Furthermore, on an operating control basis, McCaw controls 18% more POPs than LIN on a relative basis and should command a premium valuation on this dimension as well] Market Classification [Pie Graph] - --------------------- McCaw - Only LIN ------------ ----- Controlled MSAs 82.0% 69.0% Other: 18.0% 31.0% Market Control - -------------- Total Gross Control POPs 44.5 MM 19.8 MM Total Net POPs 48.9 MM 25.7 MM Gross Control POPs/Net POPs 91.0% 77.0% PRECEDENT TRANSACTIONS Implied LIN Values in the AT&T/McCaw Transaction [A PMV of $105 per share for LIN implies multiples that are consistent with, and give LIN a premium over, those observed in the AT&T/McCaw transaction] Cellular Asset Value as Multiple of Cellular ------------------------ Asset Value 1994 1994 PMV ($MM) EBITDA Revenue POPs ----- ----------- ------ ------- ---- LIN Statistic $389.8 $924.9 25,722 Morgan Stanley PMV Estimate $105 $6,862 17.6x 7.4x $267 AT&T/McCaw Closing Multiple(1) 16.1 6.9 247 Implied McCaw-only Multiple(2) 15.8 6.8 240 Implied LIN Premium 11% 9% 11% Lehman/Bear Stearns PMV Estimate $155 $9,527 24.4x 10.3x $370 AT&T/McCaw Closing Multiple(1) 16.1 6.9 247 Implied McCaw-only Multiple(2) 13.9 6.0 211 Implied LIN Premium 75% 72% 75% Notes: (1) Based on cellular asset value of $15.24 Bn, 1994E revenue and EBITDA estimates of $2,205 and $946MM from 9/30/94 Salomon Brothers report, adjusted pro forma for exchange of Philadelphia POPs and addition of New York POPs. (2) Based on McCaw cellular asset value of $15.24 Bn, less 52% of cellular asset value implied by PMV. SECTION IV SECTION IV REVIEW OF POTENTIAL PURCHASERS Tab M REVIEW OF POTENTIAL PURCHASERS Review of Private Market Value Definition [The definition of PMV calls for an assessment of LIN's private market value if sold in a value maximizing process to an unrelated third party] "...private market value per Share is the private market price per Share (including control premium) that an unrelated third party would pay if it were to acquire all outstanding Shares (including Shares held by the Offeror [McCaw] and its affiliates) in an arm's-length transaction, assuming that the Company was being sold in a manner designed to attract all possible participants...." Private Market Value Guarantee December 11, 1989 The Value of LIN that could be achieved in a auction process would be determined by the universe of potential purchasers other than AT&T that could acquire LIN. These parties would consider among other factors, the following in deciding whether to acquire LIN: - -- business case for LIN properties - -- potential operating synergies - -- potential negative operating impacts - -- appropriate hurdle rate - -- strategic value - -- competitive sale dynamics - -- regulatory conflicts - -- earnings dilution - -- balance sheet/ratings impact - -- likely market reaction Research analysts have focused entirely on AT&T as the purchaser of LIN, and have not considered the likely values that would be paid by an unrelated third party acquiror. REVIEW OF POTENTIAL PURCHASERS Determining the Universe of Potential Purchasers [At $105 per share, the effective purchase price for LIN would be in excess of $7Bn, making it far and away the largest U.S. telecom purchase transaction ever -- efforts to reduce the transaction size would likely result in taxable divestitures or sub-optimal public market spin-offs] Top Telecom Transactions(1) ---------------------------------------- Value ($BN) ------------- LIN ($105/share) $7.2 LIN/McCaw $3.6 WilTel/LDDS $2.5 Metro Mobile/Bell Atlantic $2.4 Metromedia/SBC $1.7 Note: (1) Excludes McCaw/AT&T ($17.0Bn), Contel/GTE ($9.7Bn) and Centel/Sprint ($5.0Bn), which were all pooling of interest merger transactions. REVIEW OF POTENTIAL PURCHASERS Assessing the Universe of Potential Purchasers [A broad screen should be undertaken in order to determine the maximum likely universe of potential purchasers, after which more detailed judgment can be applied]
Initial Screen + Additional Screen + Additional Screen = Resulting Screen - ----------------- ------------------------- ------------------------- ------------------------ Telecom Service Total Universe of Likely Cellular Operators PCS Bidders with Mkt Equity > Companies with Mkt Equity > Potential Purchasers with > 10MM POPs(1) $5Bn(1)(2) $5Bn(1) Mkt Value > $5Bn(1) - ----------------- ------------------------- ------------------------- ------------------------ Market Market Total Equity Equity POPs Leading Bids Value Value Company (MM) Company ($MM) Company ($Bn) Company ($Bn) - ------------------- ------ ------------ ------------ -------- ------ ----------- -------- NYNEX/Bell Atlantic 56 TCI/Sprint et al $1,844(3) MCI $12 GTE $30 AirTouch/US West 54 Pacific Telesis 500 ALLTEL 6 BellSouth 27 GTE 53 SBC Communications 24 BellSouth 40 Bell Atlantic 22 SBC Communications 39 Ameritech 23 TDS (US Cellular) 24 US West 16 Ameritech 22 NYNEX `15 Sprint 22 AirTouch 14 Pacific Telesis 12 MCI 12 Sprint 10 TCI 10 ALLTEL 8 Notes: (1) Excludes AT&T. (2) Bids as of February 15, 1995. (3) As part of WirelessCo. L.P. /TABLE Tab N REVIEW OF POTENTIAL PURCHASERS Assessing the Universe of Potential Purchasers [An initial screen of potential acquirors with significant regulatory/legal overlap would exclude Bell Atlantic, NYNEX, AirTouch and US West as likely bidders] Likely Universe of Potential Purchasers - -- Bell Atlantic - -- NYNEX - -- AirTouch - -- US West Ameritech Pacific Telesis ALLTEL TDS Sprint TCI GTE MCI BellSouth SBC Comm Bell Atlantic, NYNEX, AirTouch and US West are all prohibited from purchasing LIN's New York and Los Angeles properties (81% of LIN POPs) either due to existing market ownership or to conflicts created by their strategic alliance "In light of current regulatory and legal concerns arising from partner-competitor overlaps in the same wireless services geographic markets and in light of the need to avoid financial conflicts that would impair productive coordination of the Systems of Partners, and in light of the numerous potential acquirors of wireless properties, no Partner may, directly or indirectly, acquire any ownership Interest in or lease (as lessee) any System (or license or permit therefor) the service area of which overlaps, in any material respect, the service area of a System (or license or permit therefor) which any Partners or Affiliate thereof, directly or indirectly, has an ownership interest in, or leases (as lessee). If such an overlap occurs as a result of a larger acquisition made by a Partner or Affiliate thereof, the acquiring Partner or Affiliate shall divest the overlapping service area no later than six months after the consummation of such acquisition." Agreement of Limited Partnership between Cellular Partnership (Bell Atlantic/NYNEX) and WMC Partners, G.P. (AirTouch/US West) October 20, 1994 REVIEW OF POTENTIAL PURCHASERS Assessing the Universe of Potential Purchasers [A second screen of potential acquirors with corporate strategies inconsistent with an acquisition of LIN would exclude Ameritech and Pacific Telesis as likely bidders] Likely Universe of Potential Purchasers Bell Atlantic [words struck out] NYNEX [words struck out] AirTouch [words struck out] US West [words struck out] - -- Ameritech - -- Pacific Telesis ALLTEL TDS Sprint TCI GTE MCI BellSouth SBC Comm Pacific Telesis and Ameritech would most likely not be interested in purchasing LIN based on their stated strategic plans. Sam Ginn, Chairman and Chief Executive Officer of Pacific Telesis, announced today that the Board of Directors has decided to undertake an in-depth analysis of a proposal to separate the Bell Companies from the other operations of Pacific Telesis... A structural re-examination is important now, Mr. Ginn stated, given several concerns that confront the present organization... Moreover, Mr. Ginn said that he does not believe that the stock markets have fully reflected the value of the Pacific Telesis enterprises. Sam Ginn Chairman & CEO, Pacific Telesis April 15, 1992 "While many other regional Bells have been seeking nationwide opportunities in video services and wireless communications, Ameritech has decided to focus on its own five-state Great Lakes region and its core telecommunications network. It was conspicuously absent from the merger frenzy last year among telephone and cable television companies, and this fall it spurned invitations to join long-distance carriers or other Bell companies in a national alliance to develop wireless communications network." New York Times November 22, 1994 REVIEW OF POTENTIAL PURCHASERS Assessing the Universe of Potential Purchasers [A third screen of potential acquirors lacking the financial wherewithal to acquire significant LIN assets would exclude ALLTEL and TDS as likely bidders] Likely Universe of Potential Purchasers Bell Atlantic [words struck out] NYNEX [words struck out] AirTouch [words struck out] US West [words struck out] Ameritech [words struck out] Pacific Telesis [words struck out] - -- ALLTEL - -- TDS Sprint TCI GTE MCI BellSouth SBC Comm ALLTEL or TDS would suffer severe earnings dilution and adverse credit impacts if either were to acquire all or a significant portion of LIN even at $105 per share or its equivalent value.
ALLTEL TDS ---------------------------------------- ------------------------------------ 100% 50% Stock/ 100% 100% 50% Stock/ 100% Current Stock 50% Cash Cash Current Stock 50% Cash Cash ------- ----- ---------- ---- ------- ----- ---------- ---- LIN Price Per Share: $105 EPS Dilution:(1) 1995 52% 63% 86% 71% 143% 382% 1996 44% 50% 62% 51% 86% 200% 1998 32% 30% 25% 37% 40% 48% Capital Impacts:(1) Debt/Capital 26% 24% 43% 63% 17% 21% 47% 73% Pretax Coverage 4.6x 3.4x 1.7x 1.2x 2.9x 2.1x 0.8x 0.5x LIN Price Per Share: $155 EPS Dilution:(1) 1995 69% 91% 146% 98% 203% 651% 1996 62% 77% 115% 76% 134% 379% 1998 52% 58% 72% 61% 77% 148% Capital Impacts:(1) Debt/Capital 26% 20% 44% 69% 17% 16% 48% 79% Pretax Coverage 4.6x 3.3x 1.4x 0.9x 2.9x 2.1x 0.6x 0.4x Note: (1) Assumes LIN Base Case including Wireless Data, New Features and Long Distance. REVIEW OF POTENTIAL PURCHASERS Assessing the Universe of Potential Purchasers [Given the desire of WirelessCo to build a nationwide wireless footprint, and the lack of robust balance sheets of any of its partners, it is highly unlikely that this consortium would spend $7Bn to control just two cellular markets-- moreover, the earnings dilution to Sprint would be severe] Bell Atlantic [words struck out] NYNEX [words struck out] AirTouch [words struck out] US West [words struck out] Ameritech [words struck out] Pacific Telesis [words struck out] ALLTEL [words struck out] TDS [words struck out] - -- Sprint - -- TCI GTE MCI BellSouth SBC Comm PRO FORMA ACQUISITION IMPACTS CONSORTIUM COMPANIES' CREDIT SPRINT(1) RATINGS --------------------------------------- ----------------------------- 100% 50% Stock/ 100% Current Stock 50% Cash Cash Company Credit Rating ------- ----- ---------- ---- ------- -------------- LIN Price Per Share: $105 TCI BBB- EPS Dilution: 33% 33% 31% 1995 31% 28% 24% Comcast BB 1996 23% 18% 9% 1998 Cox NA(2) Capital Impacts: 31% 29% 41% 53% Debt/Capital 4.6x 4.0x 2.7x 2.1x Pretax Coverage LIN Price Pre Share: $155 EPS Dilution: 51% 52% 54% 1995 48% 48% 47% 1996 42% 38% 31% 1998 Capital Impacts: 31% 26% 44% 61% Debt/Capital 4.6x 4.0x 2.3x 1.6x Pretax Coverage Notes: (1) Assumes LIN Base Case including Wireless Data, New Features and Long Distance. (2) If rated not likely to command greater than BBB rating. /TABLE REVIEW OF POTENTIAL PURCHASERS Assessing the Universe of Potential Purchasers [A combination of questionable strategic imperatives...] Likely Universe of Potential Purchasers Bell Atlantic [words struck out] NYNEX [words struck out] AirTouch [words struck out] US West [words struck out] Ameritech [words struck out] Pacific Telesis [words struck out] ALLTEL [words struck out] TDS [words struck out] Sprint [words struck out] TCI [words struck out] - -- GTE MCI BellSouth SBC Comm In addition to owning Houston, GTE's "Texas Alliance" with SBC gives GTE access to the Dallas market which may well preclude it from buying an interest in Dallas, and would in any event eliminate a strategic need to do so. It is also unclear what interest GTE would have in Los Angeles given that it would not be able to ensure that its brand would be available in the market. REVIEW OF POTENTIAL PURCHASERS Assessing the Universe of Potential Purchasers [... and severe financial implications appear to eliminate GTE as a likely bidder] Likely Universe of Potential Purchasers Bell Atlantic [words struck out] NYNEX [words struck out] AirTouch [words struck out] US West [words struck out] Ameritech [words struck out] Pacific Telesis [words struck out] ALLTEL [words struck out] TDS [words struck out] Sprint [words struck out] TCI [words struck out] - -- GTE MCI BellSouth SBC Comm GTE would suffer severe earnings dilution and adverse credit impacts if it were to acquire LIN even at $105 per share
LIN Price Per Share: $105 $155 - ------------------- ---------------------------- ----------------------------- 100% 50% Stock/ 100% 100% 50% Stock/ 100% Current Stock 50% Cash Cash Stock 50% Cash Cash --------- ----- --------- ---- ----- ---------- ---- EPS Dilution:(1) 1995 NA 15% 14% 13% 23% 23% 22% 1996 NA 13% 12% 9% 22% 20% 18% 1998 NA 10% 7% 4% 18% 15% 11% Capital Impacts: Debt/Capital 30% 29% 34% 39% 28% 35% 42% Pretax Coverage 4.1x 3.9x 3.3x 2.8x 3.9x 3.0x 2.5x Payout Ratio 82% 99% 99% 98% 110% 110% 110% Note: (1) Assumes LIN Base Case including Wireless Data, New Features and Long Distance.
REVIEW OF POTENTIAL PURCHASERS Summary of Universe of Potential Purchasers [Based on the foregoing evaluation of regulatory conflicts, strategic interest and financial constraints, MCI, SBC and BellSouth would appear to be the most feasible bidders for LIN] Rationale for Exclusion --------------------------------------------------- Company Regulatory Strategic Financial Feasible - --------- ---------- --------- --------- Bidders -------- Bell Atlantic X NYNEX X AirTouch X US West X Ameritech X Pacific Telesis X ALLTEL X TDS X Sprint X X TCI X X GTE X X MCI X SBC Comm. X BellSouth X Tab O REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: MCI [An acquisition of LIN is inconsistent with the strategic direction of MCI and its significant shareholder BT] MCI has pursued wireless opportunities having a national footprint: -- Terminated potential alliance with Nextel -- Terminated strategic negotiations with AirTouch/US West-Bell Atlantic/NYNEX consortium -- Declined to participate in PCS auctions most likely due to uncertainties and financing implications of gaining a national footprint To the extent that MCI is seeking a nationwide wireless footprint, LIN offers very little: -- At $105 per share, MCI would spend more than $7Bn and gain control of only the New York and Dallas markets -- at $155 per share, the cost would exceed $9Bn -- Based on BT's previous U.S. cellular experience it is doubtful they would be supportive of such an initiative From a competitive perspective, one also must assess the likelihood of MCI purchasing LIN including AT&T's stake, thereby placing $4Bn to $6Bn in AT&T's hands with full knowledge that AT&T would in all likelihood re-enter these markets. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: MCI [Nothing in MCI's financial past suggests that it would be prepared to accept the 30% plus earnings dilution associated with a purchase of LIN at $105 per share which...] Aggregate Value Announced EPS Date Announced ($MM) Transaction Dilution(2) - -------------- --------------- ----------- -------------- Feb 1994 $1,300 Nextel (17%)(1) "4%" April 1990 1,400 Telecom-USA "5%" Notes: (1) Transaction terminated. (2) Dilution is based on analyst estimates. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: MCI [...would still be more than 10% dilutive in 1998 at $105 per share and 30% dilutive in 1998 at $155 per share]
$105 $155 ---------------------------- ----------------------------- 100% 50% Stock/ 100% 100% 50% Stock/ 100% Stock 50% Cash Cash Stock 50% Cash Cash ----- --------- ---- ----- ---------- ---- EPS Dilution:(1) 1995 28% 27% 27% 40% 42% 45% 1996 24% 22% 19% 36% 38% 36% 1997 21% 18% 13% 33% 31% 27% 1998 18% 13% 7% 30% 26% 21% Note: (1) Assumes LIN Base Case including Wireless Data and New Features and excluding Long Distance. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: MCI [A $7Bn acquisition of LIN financed principally with debt would significantly strain MCI's balance sheet while...] 1994E Pro Forma Statistics (1) -------------------------------------------- LIN Price 50% Cash/ Per Share Current 100% Stock 50% Stock 100% Cash - --------- -------- ---------- --------- --------- $105 Debt/Mkt Cap 0% 4% 24% 31% Debt/Book Cap 0% 4% 30% 38% Pretax Coverage NM 16.0x 5.1x 3.0x Cash Flow/Debt NM 294% 37% 29% $155 Debt/Mkt Cap 0% 3% 27% 39% Debt/Book Cap 0% 4% 32% 47% Pretax Coverage NM 16.0x 3.8x 2.2x Cash Flow/Debt NM 285% 27% 18% Note: (1) Assumes LIN Base Case including Wireless Data and New Features and excluding Long Distance.
REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: MCI [. . . MCI's recent stock price performance suggests that the issuance of equity would be problematic] [Graph of Indexed MCI stock price, IXC Index(1) and S&P 500 from 12/31/93 to 2/15/95] Note: (1) Includes AT&T, Sprint, LDDS, ALC and LCI. Tab P REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: SBC Comm. [SBC has historically been a disciplined, opportunistic buyer of cellular properties. . .]
Aggregate Implied Value 1995 Date Value Acquisition per POP EBITDA Multiple - --------- ($MM) -------------------------- ------------- --------------- --------- Feb 1994 $699 Associated Comm. $192 13x Nov 1993 124 Dallas (10% Minority Stake) 280 10x Nov 1993 215 Syracuse Cellular 160 N.A. June 1986 1,650 Metromedia 75 N.M.
REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: SBC Comm. [. . . a discipline which has restrained it from buying strategic properties when the "asking prices" have exceeded its calculated valuation analysis] Even though SBC owns Boston and Washington D.C. and would presumably like to "fill in" the Northeast corridor if possible, it has "passed" on strategic transactions: - -- SBC did not purchase Metromedia's Philadelphia property in 1990 - - instead Comcast was the winning bidder for $185 per POP. - -- Most recently, SBC did not purchase Bell Atlantic/NYNEX's New England properties which are adjacent to its Boston market. SNET was the winning bidder paying $200 per POP. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: SBC Comm. [Three of LIN's four cellular markets would likely not be considered strategic by SBC] SBC already operates on the B-band side of the Dallas market where it competes with LIN. Due to its "Texas Alliance" with GTE, SBC may in fact be prohibited from buying LIN's stake in Houston, but in any event would find little strategic value given that the current GTE agreement enables SBC to place its brand in the Houston market while SBC would be unable to control LIN's Houston market. Given the high regard SBC has for its cellular management, the inability to place its management team in Los Angeles would be viewed unfavorably. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: SBC Comm. [The most dilutive acquisition ever undertaken by SBC was the Metromedia cellular acquisition which produced 6.5% earnings dilution but earned out quickly due to the relatively low purchase price...] Date Aggregate Announced Announced Value Transaction EPS Dilution - --------- ($MM) ------------------------- ------------ ---------- Oct 1994 $626 Compagnie Generale des Eaux "Minimal" Feb 1994 693 Associated Comm. "2%-3%" Dec 1993 1,600 CoxCable (JV)(1) 2%-4%(2) Feb 1993 650 Hauser Comm. (cable systems) "Minimal" Dec 1990 953 Telefonos de Mexico (10%) Minimal June 1986 1,650 Metromedia "6.5%"(2) Notes: (1) Transaction terminated. (2) Dilution is based on analyst estimates. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Purchasers: SBC Comm. ...whereas a $105 per share purchase price would dilute SBC's 1995 earnings almost 20%, persisting for years to come]
Purchase Price: 105 per share Purchase Price: $155 per share ---------------------------- ----------------------------- 100% 50% Stock/ 100% 100% 50% Stock/ 100% Stock 50% Cash Cash Stock 50% Cash Cash ----- --------- ---- ----- ---------- ---- EPS Dilution:(1) 1995 18% 18% 17% 28% 28% 29% 1996 16% 15% 13% 25% 25% 25% 1997 14% 12% 9% 23% 22% 20% 1998 11% 9% 5% 21% 19% 16% Note: (1) Assumes LIN Base Case including Wireless Data and New Features and excluding Long Distance. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: SBC Comm. [Even at $105 per share a meaningful cash component would likely reduce SBC's credit rating from A to BBB or worse] 1994E Pro Forma Statistics (1) -------------------------------------------- LIN Price 50% Cash/ Per Share Current 100% Stock 50% Stock 100% Cash - --------- -------- ---------- --------- --------- $105 Debt/Mkt Cap 22% 22% 29% 36% Debt/Book Cap 46% 39% 51% 63% Pretax Coverage 5.5x 4.8x 3.4x 2.6x Cash Flow/Debt 50% 42% 31% 24% Payout Ratio 58% 73% 74% 74% $155 Debt/Mkt Cap 22% 21% 30% 40% Debt/Book Cap 46% 35% 51% 67% Pretax Coverage 5.5x 4.7x 3.0x 2.2x Cash Flow/Debt 50% 41% 27% 19% Payout Ratio 58% 83% 86% 89% Note: (1) Assumes LIN Base Case including Wireless Data and New Features and excluding Long Distance. /TABLE Tab Q REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: BellSouth [BellSouth, like SBC, has historically been a disciplined buyer of cellular properties] Implied Aggregate Value per Date Value Acquisition POP - ---------- ($MM) ---------------------------- --------- --------- April 1991 $170 Graphic Scanning $ 95 Dec 1990 410 McCaw Cellular (properties) 172 Jan 1988 710 Mobile Comm. Corp. of America 95 REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: BellSouth [Even under LIN Management's aggressive Base Case forecast, acquiring LIN would cause severe earnings dilution to BellSouth for the next several years -- an unlikely corporate action given that the 1990 LIN deal was terminated when the dilution approached 9%] Date Aggregate Announced Announced Value Transaction EPS Dilution - --------- ($MM) ------------------------- ------------ ---------- Announced Nov 1993 $1,500 QVC (14%)(1) "2%-3%" Oct 1991 335+ RAM Properties "4%" April 1991 2,500 Puerto Rico Telephone N.M. Authority(1) April 1991 410 McCaw Cellular (properties) "2%-3%" Mar 1991 102 GTE (minority properties) Minimal Dec 1990 170 Graphic Scanning "2%"(2) Sept 1989 6,858 LIN Broadcasting(1) "Minimal" Jan 1988 710 Mobile Comm. Corp. of America "2%" Unannounced Oct 1989 $8,350 LIN Broadcasting "9%" (@ $120 per share) Notes: (1) Transaction terminated. (2) Dilution is based on analyst estimates. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: BellSouth [At $105 per share BellSouth's 1995 earnings would be diluted about 15%, and at $155 per share the dilution would increase to about 25% ]
Purchase Price: 105 per share Purchase Price: $155 per share ---------------------------- ----------------------------- 100% 50% Stock/ 100% 100% 50% Stock/ 100% Stock 50% Cash Cash Stock 50% Cash Cash ----- --------- ---- ----- ---------- ---- EPS Dilution:(1) 1995 16% 15% 14% 25% 24% 23% 1996 14% 13% 11% 23% 22% 20% 1997 13% 10% 8% 21% 19% 17% 1998 10% 8% 5% 19% 17% 13% Note: (1) Assumes LIN Base Case including Wireless Data and New Features and excluding Long Distance. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Potential Purchasers: BellSouth [Even at $105 per share a meaningful cash component would severely impact BellSouth's AAA rating] 1994E Pro Forma Statistics (1) -------------------------------------------- LIN Price 50% Cash/ Per Share Current 100% Stock 50% Stock 100% Cash - --------- -------- ---------- --------- --------- $105 Debt/Mkt Cap 24% 24% 30% 36% Debt/Book Cap 39% 35% 44% 53% Pretax Coverage 5.9x 5.3x 4.1x 3.3x Cash Flow/Debt 57% 50% 38% 31% Payout Ratio 67% 82% 81% 81% $155 Debt/Mkt Cap 24% 22% 31% 39% Debt/Book Cap 39% 32% 45% 57% Pretax Coverage 5.9x 5.3x 3.6x 2.8x Cash Flow/Debt 57% 49% 34% 26% Payout Ratio 67% 91% 92% 92% Note: (1) Assumes LIN Base Case including Wireless Data and New Features and excluding Long Distance. /TABLE SECTION V SECTION V RECONCILIATION TO PUBLIC MARKET VALUE Tab R RECONCILIATION TO PUBLIC MARKET VALUE LIN Historical Price Performance vs. Selected Analyst Current PMV Estimates [LIN's trading value has closely followed research analysts' estimates of 1995 PMV] The following information is depicted on a single graph: Price Per Share - --------------------------------------------------------- Date LINB Closing PV of All-American Price(1) 1995 PMV Estimate(2) - --------- --------------- ---------------------- 08-Jan-94 97.5 15-Jan-94 95.75 22-Jan-94 99 25-Jan-94 99.53 29-Jan-94 103 - -------------------------------------------------------- 05-Feb-94 103 12-Feb-94 101.38 19-Feb-94 102.75 26-Feb-94 99.25 - -------------------------------------------------------- 05-Mar-94 100.75 09-Mar-94 107.42 12-Mar-94 99.38 19-Mar-94 98.5 26-Mar-94 100 - -------------------------------------------------------- 02-Apr-94 95.5 09-Apr-94 93.25 14-Apr-94 104.69 16-Apr-94 93.25 19-Apr-94 104.89 23-Apr-94 93 30-Apr-94 93.75 - -------------------------------------------------------- 05-May-94 108.94 07-May-94 100 11-May-94 110.05 14-May-94 99.75 16-May-94 119.66 21-May-94 103.25 28-May-94 106 31-May-94 115.19 - -------------------------------------------------------- Notes: (1) Reflects closing stock price, less $12/share prior to spin-off of LIN TV. (2) Represents 1995 PMV estimate, discounted at 15% from June 30, 1995. Price Per Share - --------------------------------------------------------- Date LINB Closing PV of All-American Price(1) 1995 PMV Estimate(2) - --------- --------------- ---------------------- 4-Jun-94 107 10-Jun-94 111.32 11-Jun-94 107.5 14-Jun-94 112.35 18-Jun-94 107.5 25-Jun-94 103.25 - -------------------------------------------------------- 02-Jul-94 108.5 09-Jul-94 108 16-Jul-94 113.25 23-Jul-94 113.25 30-Jul-94 113 - -------------------------------------------------------- 04-Aug-94 123.38 06-Aug-94 114.38 13-Aug-94 115 20-Aug-94 117 27-Aug-94 120.25 31-Aug-94 124.66 - -------------------------------------------------------- 03-Sep-94 122.13 10-Sep-94 124.25 17-Sep-94 127 21-sep-94 123.88 24-Sep-94 127.5 - -------------------------------------------------------- 01-Oct-94 127.13 08-Oct-94 123.25 15-Oct-94 124 22-Oct-94 123.25 29-Oct-94 124.5 - -------------------------------------------------------- 05-Nov-94 126.25 12-Nov-94 128 19-Nov-94 128.13 26-Nov-94 127.13 - -------------------------------------------------------- 03-Dec-94 130.5 10-Dec-94 128.38 15-Dec-94 134.46 17-Dec-94 130 21-Dec-94 129.2 24-Dec-94 133.25 31-Dec-94 133.5 - -------------------------------------------------------- Notes: (1) Reflects closing stock price, less $12/share prior to spin-off of LIN TV. (2) Represents 1995 PMV estimate, discounted at 15% from June 30, 1995. Price Per Share - --------------------------------------------------------- Date LINB Closing PV of All-American Price(1) 1995 PMV Estimate(2) - --------- --------------- ---------------------- 05-Jan-95 133.55 07-Jan-95 132.25 14-Jan-95 134.75 21-Jan-95 137.63 24-Jan-95 136.54 28-Jan-95 138 - -------------------------------------------------------- 04-Feb-95 139.13 10-Feb-95 138.75 15-Feb-95 140.5 - -------------------------------------------------------- Notes: (1) Reflects closing stock price, less $12/share prior to spin-off of LIN TV. (2) Represents 1995 PMV estimate, discounted at 15% from June 30, 1995. RECONCILIATION TO PUBLIC MARKET VALUE LIN Historical Price Performance vs. Selected Analyst 1995 PMV Estimates [PMV estimates have been repeatedly increased as analysts have continuously revised upward their 1995 PMV estimates as LIN shares traded through their target ranges] The following information is depicted on a single graph:
Price Per Share(1) - -------------------------------------------------------------------------------------------------------- Date LIN(1) Merrill DLJ Prudential Goldman Cowen Salomon - --------------------------------------------------------------------------------------------------------- 08-Jan-94 97.5 15-Jan-94 95.75 22-Jan-94 99 121.5 29-Jan-94 103 05-Feb-94 103 12-Feb-94 101.38 19-Feb-94 102.75 26-Feb-94 99.25 05-Mar-94 100.75 12-Mar-94 99.38 129 19-Mar-94 98.5 26-Mar-94 100 02-Apr-94 95.5 09-Apr-94 93.25 16-Apr-94 93.25 124 130 23-Apr-94 93 124 30-Apr-94 93.75 07-May-94 100 129 128 14-May-94 99.75 140.5 21-May-94 103.25 28-May-94 106 134 04-Jun-94 107 11-Jun-94 107.5 129 130 18-Jun-94 107.5 25-Jun-94 103.25 02-Jul-94 108.5 09-Jul-94 108 16-Jul-94 113.25 23-Jul-94 113.25 30-Jul-94 113 06-Aug-94 114.38 140.5 13-Aug-94 115 20-Aug-94 117 27-Aug-94 120.25 140 03-Sep-94 122.13 10-Sep-94 124.25 17-Sep-94 127 24-Sep-94 127.5 138 01-Oct-94 127.13 08-Oct-94 123.25 15-Oct-94 124 22-Oct-94 123.25 29-Oct-94 124.5 05-Nov-94 126.25 12-Nov-94 128 19-Nov-94 128.13 26-Nov-94 127.13 03-Dec-94 130.5 10-Dec-94 128.38 17-Dec-94 130 142.5 145 24-Dec-94 133.25 139 31-Dec-94 133.5 07-Jan-95 132.25 145 14-Jan-95 134.75 21-Jan-95 137.63 145.3 145 144.7 28-Jan-95 138 04-Feb-95 139.13 10-Feb-95 138.75 15-Feb-95 140.5 Note: (1) Reflects closing stock price, less $12/share prior to spin-off of LIN TV.
RECONCILIATION TO PUBLIC MARKET VALUE Analyst Operating Projections [... notwithstanding the fact that LIN's 1994 revenues were mostly on target while 1994 EBITDA was significantly below expectations] Revenue/POP(1) EBTIDA/POP(1) -------------- ------------- Actual as % of Actual as % of Estimate Estimate -------------- ------------- Prudential (3/94) 103.7% 94.2% Merrill Lynch (4/94) N.A. 88.5% Salomon (4/94) 102.5% 88.4% Goldman (11/92) 107.5% 83.7% DLJ (7/93) 106.2% 82.0% Note: (1) Based on LIN actual pro forma for exchange of Philadelphia and acquisition of additional 5% of New York POPs. RECONCILIATION TO PUBLIC VALUATION LIN Indexed 1994 Price Performance [Collectively these ever-increasing PMV estimates helped drive LIN's stock price 30% above the cellular index since year-end 1993] [Graph of Indexed LIN(1) daily stock price and Cellular Index(2) from 12/31/93 to 2/15/95] Notes: (1) Includes LIN TV after 12/28/94. (2) Index includes AirTouch, CCI, Vanguard, Comnet, US Cellular and Centennial. Excludes Contel Cellular and Associated Communications due to announced acquisitions during 1994. RECONCILIATION TO PUBLIC MARKET VALUE Analysts' PMV Estimates (continued) [These PMV estimates have been further inflated by including 100% of AT&T synergies in LIN's projections ... ] "The logic in better results for LIN than the industry overall is basically related to the demographics of its markets, combined with the benefits of being owned by AT&T." Frank Governali - First Boston January 12, 1995 "LIN is clearly a significant beneficiary of the transaction, because all of the benefits accruing to McCaw automatically accrue to LIN. In fact, these benefits may be even more important for LIN because it operates in the country's largest markets where new business opportunities are likely to be the greatest, as will be the possible competition." Barry Kaplan - Goldman Sachs November 24, 1992 "The AT&T strategic alliance should result in higher market share and lower costs and thus higher cash flows and values. The AT&T brand name is one of the most formidable in the country . . . McCaw and LIN would also have access to AT&T's customer lists, its salespeople, and its phone centers, at which wireless service would be sold . . . For McCaw and LIN, enhanced market share and lower costs should raise values as well." Dennis Leibowitz - DLJ November 17, 1992 RECONCILIATION TO PUBLIC MARKET VALUE Selected Analyst 1995 PMV Estimates and Revisions [...as can be seen by the fact that analysts raised their PMV estimates after the AT&T/McCaw merger announcement, despite the fact that the transaction represented no new information about LIN's PMV as defined]
1995 PMV Estimate(1) (ex-TV) ----------------------------------------------------------------- Pre-Merger (11/92-8/93)(3) Post-Merger (after 8/16/93)(2) -------------------------- ------------------------------ PMV Date PMV Date ------- --------- ---------- --------- DLeibowitz DLJ* $123 7/9/93 $137 5/31/94 SPassoni Smith Barney/Cowen* $123 11/16/92 $128 5/5/94 JBauer Prudential* $108 8/2/93 $128 3/9/94 FGovernali CSFB $118 11/6/92 $133 2/18/94 PJurczak Merrill/Nomura $111 5/4/93 $128 2/22/94 CPhillips Shearson Lehman/Smith Barney $113 2/19/93 $113 4/7/94 Mean $116 $128 *Institutional Investor All-American Notes: (1) Reflects estimated 1995 PMV per share price less $12/share assumed value attributed to TV spin-off. (2) Represents first estimate after announcement of AT&T/McCaw merger on August 16, 1993 (based on Investext). (3) Represents last estimate prior to announcement of AT&T/McCaw merger on August 16, 1993. /TABLE RECONCILIATION TO PUBLIC MARKET VALUE Analysts' PMV Estimates in Precedent Cellular Transactions [These errors are further compounded since analysts' PMV estimates are typically 35% above actual private market transaction prices] Mean Analyst PMV as Premium to Transaction Price ------------------------------------------------ Contel Cellular (10%)/ 17% GTE McCaw/AT&T 21% Metro Mobile/Bell Atlantic 35% Contel/GTE 37% Associated/SBC 43% Centel/Sprint 50% US West New Vector (19%)/ 64% US West RECONCILIATION TO PUBLIC MARKET VALUE Analyst DCF Values [Most of this can be explained by the fact that analysts are not rigorous in applying accurate discount rates and exit multiples . . .] Stated PMV Estimates - -------------------- Goldman Sachs $155 Salomon Brothers $145 Merrill Lynch $140 First Boston $150 DCF Value at 6/30/95 - -------------------- Goldman Sachs(1) $125-$149 Salomon Brothers $140 Merrill Lynch $119-$138 First Boston $149-$170 "Recalculated" DCF Value at 2/15/95(2) - -------------------------------------- Goldman Sachs(3) $110-$120 Salomon Brothers(3)(4) $109-$120 Merrill Lynch(3) $108-$119 First Boston(5) $101-$110 Notes: (1) Excludes $10/share value of LIN TV. (2) All calculated values assume $1,615MM debt, $143MM options proceeds, $94MM cash and working capital, $88MM WOOD-TV value, $24MM AMSC value, and 53.3MM shares. (3) Assumes 10.0x to 11.0x EBITDA in year 2000 and 13.5% WACC. (4) Assumes "LIN Base Case" unadorned capital expenditures and depreciation. (5) Assumes 9.5x to 10.5 EBITDA in year 2004 and 13.5% WACC. RECONCILIATION TO PUBLIC MARKET VALUE Case Study of Merrill Lynch Research Analyst Errors [... and/or make errors of logic ...] - -- Runyon calculates prior transaction multiples correctly... "McCaw was trading at approximately 19 times operating cash flow when the AT&T deal was announced and 15 times when it closed." - -- ... but then applies a higher multiple to LIN's 1995E EBITDA. "If we run through this exercise and apply a [sic] 18 times multiple [to LIN], we arrive at a range of $142-$158 (including LIN TV)." - -- In actuality, 18x 1995E EBITDA implies a multiple of 24.2x 1994 EBITDA... 18x$520MM/$386MM=24.2x - -- ... or a 60% premium over the empirical transaction multiple of 15x RECONCILIATION TO PUBLIC MARKET VALUE Case Study of CSFB Research Analyst Errors [... or simple arithmetic errors] CSFB/Frank Governali Projection for LIN - January 12, 1995
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Operating Cash Flow 495 621 778 900 991 1,164 1,314 1,454 1,621 1,753 Unlevered Free Cash Flow 10 42 199 273 305 441 586 665 801 963 Morgan Stanley Governali Report on LIN - January 12, 1995 Comments Calculation - ------------------------------------------ ---------------------------------------- --------------- 13.0% 13.5% 13.0% 13.5% ----- ----- ----- ----- NPV of FCF $6,190 $5,789 Gross calculation error $1,883 $1,830 NPV of Terminal Value assuming 7% perpetual growth 3,780 3,097 Gross calculation error 5,007 4,422 ------ ------ ------ ------ Total Value $9,971 $8,887 $6,889 $6,252 Plus: Other Assets - - Doesn't reflect the spin of TV debt or give credit for other assets 351 351 Less: Net Debt (1,725) (1,725) (1,615) (1,615) ------- ------- ------- ------- Equals: Equity Value $8,246 $7,162 $5,625 $4,988 Shares Outstanding 52.1 52.1 53.3 53.3 Per Share $158 $137 Errors have big impact on value $106 $94 Multiple of 1994 OCF 24.5x 21.8x 16.9x 15.3x Multiple of 1995 OCF 20.1x 17.9x 13.9x 12.6x Alternatively, to get to his values, one would need to use a 16x 2004 EBITDA multiple /TABLE APPENDIX APPENDIX: IMPLIED PUBLIC TRADING VALUE Demographic Overview of Public Cellular Companies [LIN and AirTouch have the most similar markets demographically...] % of POPs in Top % of POPs in Top 10 Markets 50 Markets % Majority Control - ---------------- ---------------- ------------------ LIN 98% LIN 98% ICEL 100% ATI(1) 33% ATI(1) 80% COMMA 97% COMMA 29% COMMA 69% VCELA 95% CCXLA 15% CCXLA 42% USM 89% USM 4% CYCL 9% ATI(1) 89% CYCL 2% USM 7% CYCL 81% CELS 0% CELS 0% LIN 77% ICEL 0% ICEL 0% CELS 73% VCELA 0% VCELA 0% CCXLA 69% % Workforce in Key Salaries > $50,000 Commuting Time Cellular Industries % of Total POPs Minutes % of Total POPs - ------------------ -------------- ------------------- LIN 21% LIN 26 ATI(1) 40% ATI(1) 19% ATI(1) 22 LIN 36% CCXLA 16% CCXLA 21 CCXLA 35% COMMA 16% COMMA 21 CELS 34% CYCL 16% ICEL 21 CYCL 33% USM 15% USM 20 COMMA 33% VCELA 14% CYCL 18 USM 33% CELS 10% VCELA 18 ICEL 29% ICEL 6% CELS 17 VCELA 29% Note: (1) Pro forma for AirTouch's 70% interest in AirTouch/USWest joint venture. APPENDIX: IMPLIED PUBLIC TRADING VALUE Operating Comparison of Public Cellular Companies(1) [...as well as from a financial perspective...] Penetration Revenue/Sub/Month ------------------ --------------------- COMMA 3.99% LIN $84 ATI(2) 3.82% USM $76 LIN 3.79% ATI(2) $74 ICEL 3.24% CYCL $73 CCXLA 2.89% COMMA $72 VCELA 2.88% VCELA $72 CELS 2.55% CCXLA $70 CYCL 1.93% CELS $70 USM 1.56% ICEL $47 Revenue/POP EBITDA/POP ------------------ --------------------- LIN $37 LIN $17 COMMA $35 COMMA $13 ATI(2) $30 ICEL $13 CCXLA $28 ATI(2) $12 ICEL $27 CCXLA $9 VCELA $24 VCELA $7 CELS $23 CELS $6 USM $15 CYCL $6 CYCL $13 USM $5 Notes: (1) As of third quarter 1994 (2) Pro forma for AirTouch's 70% interest in AirTouch/US West joint venture. APPENDIX: IMPLIED PUBLIC TRADING VALUE Operating Comparison of Public Cellular Companies [...and a growth perspective.] Subscriber Growth(1) Revenue Growth(1) -------------------- --------------------- CYCL 69% CELS 74% CELS 64% CCXLA 39% VCELA 64% CYCL 37% USM 55% ATI(3) 36% CCXLA 52% LIN 34% ATI(3) 49% VCELA 33% LIN 46% COMMA 27% COMMA 45% USM 20% EBITDA Growth(1) EBITDA Margin(2) -------------------- --------------------- USM 114% CYCL 46% CCXLA 52% LIN 46% VCELA 49% ATI(3) 40% CYCL 32% COMMA 37% ATI(3) 31% CCXLA 32.5% CELS 27% USM 32.2% LIN 23% VCELA 30% COMMA 22% CELS 24.9% Notes: (1) Represents year-to-year third quarter growth. (2) As of third quarter 1994. (3) Pro forma for AirTouch's 70% interest in AirTouch/USWest joint venture. APPENDIX: IMPLIED PUBLIC TRADING VALUE AirTouch Trading Analysis [AirTouch, which is the most directly comparable company to LIN, trades at 10.4 to 11.7x 1995E EBITDA]
Implied AirTouch Trading Multiple of(1)(2) ----------------------------------------------------------- Domestic Revenue Range of ($MM) Domestic EBITDA ($MM) International Discount to ------------------- --------------------- Asset Values Consensus(3) POPs 1994 1995E 1994 1995E - ------------- ------------ ------- ------ ------- ------ ------- 35.0 $1,142 $1,451 $479 $657 $4,400 -18.5% $236 7.2x 5.7x 17.2x 12.6x 4,600 -14.8% 230 7.1 5.6 16.8 12.3 4,800 -11.1% 225 6.9 5.4 16.4 12.0 - ---------------------------------------------------------------------------------------------------------- 5,000 -7.4% 219 6.7 5.3 16.0 11.7 5,200 -3.7% 213 6.5 5.1 15.6 11.4 5,400 0.0% 207 6.4 5.0 15.2 11.1 5,600 3.7% 202 6.2 4.9 14.7 10.8 5,800 7.4% 196 6.0 4.7 14.3 10.4 - ---------------------------------------------------------------------------------------------------------- 6,000 11.1% 190 5.8 4.6 13.9 10.1 6,200 14.8% 185 5.7 4.5 13.5 9.8 6,400 18.5% 179 5.5 4.3 13.1 9.5 Notes: (1) Source of 1994 and 1995 estimates: mean of Merrill Lynch and PaineWebber. Estimates are for domestic cellular only. (2) Multiples assume share price of $27.250 as of February 15, 1995. (3) Assume analyst consensus value of $5.4Bn, based on the following ranges: $4.5-$5.4Bn (Goldman Sachs), $5.8-$6.7Bn (Merrill Lynch), and $5.2-$6.6 Bn (Morgan Stanley). Goldman Sachs and Merrill Lynch include $200-$300MM value of Spain (Morgan Stanley estimate). Excludes Lehman Brothers 1/11/95 estimate of $9.7Bn. /TABLE APPENDIX: IMPLIED PUBLIC TRADING VALUE Implied LIN Valuation Based on AirTouch Trading [AirTouch's public trading multiples imply LIN share prices of $80-$95 per share] Implied AirTouch LIN Value LIN Measure Trading Multiple Per Share(1) - ------------------------- ---------------- ------------ POPs(MM) 25.7 $196 - $219 $70.69 - $81.70 Revenue ($MM) (2) 1994 $924.9 6.0 - 6.7 80.51 - 92.66 1995E 1,160.0 4.7 - 5.3 79.17 - 91.17 EBITDA ($MM) (2) 1994 389.8 14.3 -16.0 81.03 - 93.24 1995E 537.9 10.4 - 11.7 81.68 - 93.97 Notes: (1) Based on 53.3MM LIN shares, $1615MM of debt and $350MM of cash and other assets. (2) 1995 estimates are LIN Base Case excluding Wireless Data, Long Distance and Additional Features. LIN BROADCASTING Valuation Review March 2, 1995 TABLE OF CONTENTS SECTION I Review of Morgan Stanley Valuation Analysis SECTION II Review of Bear Stearns/Lehman Brothers Valuation Analysis Tab A Competitive Position Tab B Discounted Cash Flow Analysis Tab C Precedent Transactions Tab D Review of Potential Purchasers Tab E Public Market Valuation SECTION I SECTION I REVIEW OF MORGAN STANLEY VALUATION ANALYSIS REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Basis of Valuation Methodology [In arriving at its valuation view, Morgan Stanley examined the following, among other things:] - -- LIN's intrinsic value implied by LIN management projections. - -- Values implied by precedent transactions. - -- Evaluation of potential unrelated third party acquirors of LIN. - -- LIN's "allocated" purchase price in the context of AT&T's acquisition of McCaw/LIN. - -- PMV price for LIN projected by McCaw in 1992 in the context of its financial planning process. - -- Evaluation of the 1989 contested battle for LIN. - -- Likely public market trading value for LIN absent the PMVG agreement. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Review of Operating Projections [LIN Management's Base Case projections for the core cellular business represent an aggressive set of operating assumptions] LIN Management's Base Case was not prepared in the ordinary course but rather for the sole purpose of the PMVG process. Base Case assumptions are inconsistent with operating performance to date as results since have fallen short of the LIN Management projections prepared in October 1992. EBITDA margins are projected to improve from 42% in 1994 to 50% in 2004 due primarily to decreased marketing expenditures, in spite of increased competition due to the formation of strategic alliances, whose partners are in LIN's four markets, as well as new PCS entrants. Projections for capital expenditures appear to include no allocation for replacement capital, causing net PP&E per subscriber to decline almost fourfold from 1998 to 2004. Base case assumptions do not take into account potential "negative synergies" and "dislocations" -- including the prospect of competing against AT&T Wireless. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Discounted Cash Flow Analysis [Simpley adjusting LIN Management's Base Case operating projections for higher marketing costs, such that EBITDA margins do not exceed 45%, and for replacement capital expenditures yields values for LIN of $81 to $88 per share] DCF Valuation - -------------------------------------------------------------- Low(1) High(2) --------- ----------- LIN Management's Base Case $103 $111 Adjusted for Higher Marketing Costs 92 99 Additionally Adjusted for Replacement Capital Expenditures 81 88 Notes: (1) Low value based on WACC of 13.50% and 2004 EBITDA exit multiple of 9.5 as of 2/15/95. (2) High value based on WACC of 13.50% and 2004 EBITDA exit multiple of 10.5 as of 2/15/95. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Analyst Intrinsic Values [Analysts have included AT&T synergies in their LIN projections, raising their PMV estimates an average of $12 per share as a result of AT&T's acquisition of McCaw/LIN] "The logic in better results for LIN than the industry overall is basically related to the demographics of its markets, combined with the benefits of being owned by AT&T." Frank Governali - First Boston January 12, 1995 "LIN is clearly a significant beneficiary of the transaction, because all of the benefits accruing to McCaw automatically accrue to LIN. Barry Kaplan - Goldman Sachs November 24, 1992 "The AT&T strategic alliance should result in higher market share and lower costs and thus higher cash flows and values. The AT&T brand name is one of the most formidable in the country . . . McCaw and LIN would also have access to AT&T's customer lists, its salespeople, and its phone centers, at which wireless service would be sold . . . For McCaw and LIN, enhanced market share and lower costs should raise values as well." Dennis Leibowitz - DLJ November 17, 1992 REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Analyst Intrinsic Values [Analysts' unchallenged projections for LIN yield DCF values of $101-120, which include AT&T value-added in their projections] Analysts' Intrinsic Valuations(1) - -------------------------------------------------------------- Estimated DCF Value w/o AT&T Analyst DCF Value Value-added(4) - ----------------- ----------- ---------------- Goldman Sachs $110 - 120 $98 - 108 Salomon Brothers(2) 109 - 120 97 - 108 Merrill Lynch 108 - 119 96 - 107 First Boston(3) 101 - 110 89 - 98 Notes: (1) Represents DCF value as of 2/15/95 based on analysts' projections, 13.50% WACC, and 10-11x exit multiples in 2000. (2) Assumes Base Case CapEx projections. (3) Based on 9.5-10.5x exit multiple in 2004. (4) Reflects DCF value less $12/share, based on mean increase in PMV estimates after announcement of AT&T/McCaw merger. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS The AT&T/McCaw Transaction [The single most relevant precedent transaction in determining the PMV of LIN is AT&T's acquisition of LIN, although the precedent does have its limitations] While Morgan Stanley agrees that AT&T/McCaw is the most relevant precedent, it is important to understand that McCaw/LIN valuation is in many ways a ceiling not a floor on LIN's standalone valuation. - -- AT&T was able to achieve a level of synergies which no other third party could achieve. - -- Transaction incorporated a valuation premium to reflect the strategic benefit to AT&T's core business of owning both the McCaw and LIN properties. - -- AT&T was able to achieve pooling of interests accounting treatment. - -- Wireless arena has grown more competitive since the AT&T/McCaw transaction was announced. - -- Interest rates have risen almost 200 basis points since the AT&T/McCaw transaction was announced. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS The AT&T/McCaw Transaction [At announcement, AT&T's expected 9/94 purchase price of $16.2Bn implied an acquisition price at 9/94 for the LIN shares of $98-$112.] Implied LIN Share Price based on Analyst Estimates - ----------------------------------------------------------------- Announcement(1) ----------------------------------------------- First Boston DLJ Goldman (7/93) (7/93) (11/92) ------------ -------- --------- 1994E Revenue $103 $100 $102 1994E EBITDA(2) 111 108 112 1995E Revenue NA 98 101 1995E EBITDA(2) NA 104 111 Average $107 $103 $106 POPs 106 106 106 Notes: (1) Analyst estimates are adjusted to exclude Philadelphia. (2) EBITDA is before corporate overhead. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Summary of Universe of Likely Potential Purchasers Rationale for Exclusion --------------------------------------------------- Company Regulatory Strategic Financial Feasible - --------- ---------- --------- --------- Bidders -------- Bell Atlantic X NYNEX X AirTouch X US West X Ameritech X Pacific Telesis X ALLTEL X TDS X Sprint X X TCI X X GTE X X MCI X SBC Comm. X BellSouth X REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Detailed Review of Individual Potential Purchasers [Any of the three most likely purchasers would face significant transaction hurdles in acquiring LIN] MCI -- Acquisition of LIN potentially inconsistent with MCI's wireless strategy. -- An acquisition of LIN at $105 per share would dilute earnings by 30% in 1995, and have severe impacts on MCI's balance sheet. -- An acquisition of LIN by MCI also seems inconsistent with the strategic direction of its significant shareholder, BT. SBC -- Almost 50% of LIN's assets would be non-strategic: - SBC is prohibited from owning Dallas. - The alliance with GTE obviates the need to acquire an interest in Houston. - LIN's interest in Los Angeles does not offer SBC control. -- An acquisition of LIN at $105 per share would dilute earnings by 20% in 1995, and have significant impacts on SBC's balance sheet. BellSouth -- BellSouth has proven a disciplined buyer of cellular properties in the past, purchasing assets on an opportunistic basis. -- Given BellSouth's decision to pass on LIN in 1989 when dilution became significant, it seems unlikely that it would seek to purchase LIN when the earnings dilution would be significantly higher. -- An acquisition of LIN at $105 per share would dilute earnings by 20% in 1995, and have significant negative impacts on BellSouth's balance sheet. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Summary of Valuation Methodologies: Review Price Per Share ------------------- Private Market Value LIN Management Intrinsic Value $103-$111 "Adjusted" LIN Management Intrinsic Value $81-$88 Analyst Intrinsic Value $101-$120 "Adjusted" Analyst Intrinsic Value $89-$108 "Allocated" AT&T Purchase Price $98-$112 Public Market Value Current Comparable Company Trading $80-$95 Morgan Stanley PMV Estimate $105 SECTION II SECTION II REVIEW OF BEAR STEARNS/LEHMAN BROTHERS [IDA] VALUATION ANALYSIS Tab A Tab A COMPETITIVE POSITION COMPETITIVE POSITION Review of Market Characteristics ['[LIN's] four markets are characterized by superior 'cellular' demographics, ranking well above the national average in terms of selected indicators of future cellular usage. . ." ] New York's "cellular" demographics (representing 57% of LIN's POPs) are themselves misleading due to unusually high use of public transportation that occurs in the market. This use of public, not private, transportation is a major contributor to the market's below-average penetration levels.
Demographics and Penetration Statistics Indexed to National Average - ------------------------------------------------------------------------------------------------------------ Population/ % Households High Profile Commute Local Interstate Square Mile >$50k POPs >30 Min. Traffic Density Penetration ----------- ------------ ------------- --------- ---------------- ----------- New York 53.4x 1.6x 1.3x 1.8x 3.2x 0.97 COMPETITIVE POSITION LIN vs. Peer Group ["Given that cellular is still in an early growth stage, demographic statistics for particular markets are probably the best indicators of future demand for cellular service."] Demographic statistics are not necessarily indicative of demand for cellular service, as evidenced by LIN's own markets. Demographics Analysis - Indexed vs. National Average - ------------------------------------------------------------------------------------------------------------ POPs/ % HH High Profile Commute Local Interstate 1994 LIN Market Sq. Mile >$50k POPs >30 Min. Traffic Density Penetration - ------- ----------- ------------ ------------- --------- ---------------- ----------- New York 53.4 1.6 1.3 1.8 3.2 1.0 6.4 1.3 1.0 1.4 3.3 1.0 7.1 1.3 1.1 1.3 2.0 1.2 7.7 1.3 1.3 1.5 3.5 1.4
COMPETITIVE POSITION Comparison of Historical Operating Performance [Notwithstanding claims that "McCaw's decision to focus LIN on subscriber growth...diminished operating cash flow in the near term," LIN's peers have grown subscribers and EBITDA more rapidly than LIN.] Subscriber Growth(1) - ----------------------------------------------------------------- 1993 1994 - ----------------------------- ----------------------------- MCAWA (Only) 44% MCAWA (Only) 51% ATI 41% ATI 49% BLS 39% BLS 42% LIN(2) 29% LIN(2) 38% EBITDA Growth(1) - ----------------------------------------------------------------- 1993 1994 - ----------------------------- ----------------------------- ATI 36% BLS 36% BLS 36% ATI 26% MCAWA (Only) 33% LIN(2) 16% LIN(2) 20% MCAWA (Only) N.A. Notes: (1) For full year 1994. (2) Excludes Philadelphia. COMPETITIVE POSITION LIN vs. Peer Group [Notwithstanding "efforts to accelerate growth of its . . . subscriber base in the near term . . .," LIN's actual 1994 subscriber growth was significantly below the average of its peers.] 1994 Subscriber Growth(1) - --------------------------------------------------------------- BEL 62% USW 61% NYN 57% AIT 51% MCAWA(Only) 51% ATI 49% GTE 46% SBC 45% LIN(2) 42% BLS 38% Notes: (1) Year-end 1994 vs. year-end 1993. (2) Actual figure, pro forma for additional 5% of New York, excluding recent acquisitions and excluding Philadelphia. Source: Paul Kagan Associates Tab B Tab B DISCOUNTED CASH FLOW ANALYSIS DISCOUNTED CASH FLOW ANALYSIS Review of Operating Projections [-- "These projections did not include the impact of synergies that a buyer may bring." - -- "The IDA found that LIN's assumptions are reasonable relative to those of Wall Street analysts." - -- "EBITDA per POP is an important valuation measure which combines penetration, ARPU and EBITDA margin and, thus, represents a good summary view of projected performance...."] Comparison of Operating Projections - --------------------------------------------------------------- 2000 2004 -------- -------- EBITDA/POP - --------------------------------------------------------------- LIN Management Base Case $44.55 $65.06 First Boston(1) 42.63 61.72 LIN Premium 4.5% 5.4% (EBITDA-CapEx)/POP - --------------------------------------------------------------- LIN Management Base Case $38.34 $62.40 First Boston(1) 28.60 51.86 LIN Premium 34.1% 20.3% "The logic in better results for LIN than the industry overall is basically related to the demographics of its markets, combined with the benefits of being owned by AT&T." Frank Governali - First Boston January 12, 1995 Note: (1) Based on 1/12/95 report. DISCOUNTED CASH FLOW ANALYSIS Target Capitalization ["The IDA assumes a target debt to market capitalization of 35% based on an analysis of the leverage ratios of cable companies, television broadcasting companies, and RBOCs"] Standalone Public Cellular Companies - --------------------------------------------------------------- Company Current Debt/Market Cap(1) - --------------------- ------------------------------ LIN 17% AirTouch 0% Cellular Comm. 8% Vanguard 21% S&P Target Capitalization(2) - --------------------------------------------------------------- Rating: B BBB - ------ -------------- -------------- LIN Share Price: $105 $155 $105 $155 - --------------- ----- ---- ----- ---- Cons. EBIT/Int. 19.2% 13.8% 10.6% 7.4% Cons. EBITDA/Int. 23.1 16.8 13.0 9.2 Debt/POP 18.9 13.6 8.5 5.9 Debt/Sub 25.0 18.4 16.4 11.7 ------ ----- ----- ----- Mean 21.6% 15.7% 12.1% 8.6% Notes: (1) Market equity as of 2/15/95. (2) Represents maximum debt/market capitalization to meet S&P cellular rating guidelines, July 1994. Assume 10.5% cost of debt. DISCOUNTED CASH FLOW ANALYSIS Cost of Equity ["To derive LIN's beta, we calculated a mean industry unlevered predicted beta."] - -- To derive LIN's asset beta, one need look no further than LIN itself, since LIN's specific equity beta is observable. - -- Moreover, LIN's estimated asset beta has been remarkably stable over time. Historical Predicted Asset Beta(1) - --------------------------------------------------------------- Jan-1993 0.94 Apr-1993 0.97 Jul-1993 1.01 Oct-1993 1.05 Jan-1994 1.03 Apr-1994 1.02 Jul-1994 0.96 Oct-1994 1.00 Jan-1995 0.98 Yellow area upper bound 1.05 Yellow are lower bound 0.95 Note: (1) Equity betas from BARRA, U.S. Equity Beta Book. DISCOUNTED CASH FLOW ANALYSIS Cost of Debt ["The IDA estimated LIN's cost of debt assuming a targeted debt mix of 50% short term bank debt and 50% long-term public debt. The cost of bank debt was estimated at LIBOR +2.5% based on the company's most recent bank credit agreements. We assumed the public debt would have . . . an average borrowing rate of 10.5% based on the current trading levels of various cellular companies high yield debt.] - -- It is inappropriate to use short or intermediate term debt rates in calculating the rates at which to discount a perpetual stream of cash flows. - -- The IDA's assumed floating rate of LIBOR + 250 bp is the swapped equivalent of a fixed rate of 10.21%. - -- 35% debt/cap implies CCC credit rating at best. - -- CCC wireless credits trading at 11.84% - 13.06% (2/15/95). Selected Cellular Debt Trading Levels - --------------------------------------------------------------- Issuer Rating 2/15/95 YTM - --------------- -------------- ---------------- CommNet [Sr. Sub] Caa/CCC 11.84% Horizon Cellular [Sr. Sub] Caa/CCC+ 13.06% Note: (1) Based on LIBOR swap spread of T+34 over 5-year UST of 7.34% (2/15/95). DISCOUNTED CASH FLOW ANALYSIS WACC Estimate ["This WACC range [of 11-13%] is consistent with the WACC ranges used in comparable cellular acquisitions . . ."]
Change in 10-Yr. UST Firm Date Stated WACC Since Opinion Adjusted WACC - ------------------ ------- ------------- -------------------- -------------- Financial Advisors Salomon Brothers (AT&T/McCaw) 08/16/93 11.00 - 13.00% 1.76% 12.56 - 14.56% Lazard Freres (AT&T/McCaw) 08/15/93 10.00 - 12.00% 1.76% 11.56 - 13.56% Paine Webber (GTE/Contel) 12/27/94 13.00 - 15.00% -.32% 12.72 - 14.72% Merrill Lynch (GTE/Contel) 12/27/94 12.00 - 14.00% -.32% 11.72 - 13.72% Average 12.14 - 14.14% Appraisers Morgan Stanley 02/15/95 13.00 - 14.00% Lehman/Bear Stearns - Stated 02/15/95 11.00 - 13.00% Lehman/Bear Stearns - Adjusted @ 35% 02/15/95 13.22 - 13.64%(1) Lehman/Bear Stearns - Adjusted @ 20% 02/15/95 13.59 - 13.83%(2) Notes: (1) Reflects adjustments based on LIN asset beta of 0.98, 7.44% risk-free rate, 7.22% market risk premium, 35% debt/capital, and cost of debt of 11.0-13.0% (pre-tax). (2) Reflects adjustments based on LIN asset beta of 0.98, 7.44% risk-free rate, 7.22% market risk premium, 20% debt/capital, and cost of debt of 9.50-11.50% (pre-tax). DISCOUNTED CASH FLOW ANALYSIS WACC Calculation - Lehman/Bear Stearns Estimate [Lehman/Bear Stearns understate the proper WACC for LIN, even using their own assumptions] Lehman/Bear Stearns Comments Corrected - ---------------------------------------------------------------------------------------------------------- Industry LIN 35% Debt/ 20% Debt/ Capital Capital - ---------------------------------------------------------------------------------------------------------- Predicted Equity Beta .98 - 1.13 Must use LIN's specific beta 1.10 1.10 - ---------------------------------------------------------------------------------------------------------- Predicted Asset Beta(1) .79 - .99 Must calculate asset beta 0.98 0.98 - ---------------------------------------------------------------------------------------------------------- Target Leverage 35.0% - 35.0% Observation: 35% leverage is 35.0% 20.0% higher than any cellular company or RBOC - ---------------------------------------------------------------------------------------------------------- Relevered Equity Beta 1.04 - .99 And relever for assumed 1.29 1.12 leverage - ---------------------------------------------------------------------------------------------------------- Risk-Free Rate 7.86% 7.44% 7.44% - ---------------------------------------------------------------------------------------------------------- Risk Premium 7.22% 7.22% 7.22% - ---------------------------------------------------------------------------------------------------------- Cost of Equity 15.37 - 15.01% Must use relevered equity 16.78% 15.56% (Calculated) beta to calculate cost of equity =Rf + [symbol Beta] x (Risk Premium) - ---------------------------------------------------------------------------------------------------------- Cost of Equity 14.00 - 16.00% (Stated) - ---------------------------------------------------------------------------------------------------------- Cost of Debt 9.00 - 11.00% Cost of debt must be consistent 11.00- 9.50 with target leverage -- at 35% 13.00% 11.50% debt/cap, LIN would likely be no better than a CCC credit - ---------------------------------------------------------------------------------------------------------- WACC - 11.00 - 13.00% (Stated) - ---------------------------------------------------------------------------------------------------------- WACC - (Calculated) 11.65 - 12.30% 13.22 - 13.59 - 13.64% 13.83% Note: (1) Assumes 17.1% debt/total capitalization for LIN based on share price of $140.50 (2/15/95) and net debt of $1,537MM at 12/31/94.
DISCOUNTED CASH FLOW ANALYSIS Exit Multiples ["...cable television transaction multiples are a reasonable indicator of future 'steady-state' transaction multiples and terminal value multiples for the cellular sector. Recent precedent M&A transactions involving cable television companies have generally been consummated at EBITDA multiples ranging from 10x-13x..."] - -- Cable TV properties are currently being sold for approximately 10x-11x EBITDA. - -- Moreover, these benchmarks are somewhat specious given that terminal values are a function of both discount rate and perpetual growth rate and cable companies have weighted average costs of capital which are 150 to 200 basis points lower than cellular companies. DISCOUNTED CASH FLOW ANALYSIS Exit Multiples ["We reviewed the terminal value multiples used by . . . other financial advisors in selected precedent M&A transactions involving cellular companies."]
Terminal Multiples ---------------------------------------------------- Firm Date 1999 2000 2002 2004 - ------------------- ---- ---- ---- ---- ---- Financial Advisors Paine Webber(1) 12/27/94 10.5-12.5x [10.2-12.3x] Merrill Lynch(1) 12/27/94 10.0-12.0x [9.6-11.7x] Lazard Freres 08/16/93 [9.7-11.6x] 9.0-11.0x Salomon Brothers 08/16/93 [10.6-11.6x] 10.0-11.0x Average 10.0-11.8x Appraisers Morgan Stanley(2) 02/09/95 [9.9-10.9x] [9.4-10.2x] 9.5-10.5x Lehman Bros./ Bear Stearns(3) 02/09/95 [11.7-13.5x] [10.7-12.5x] 10.5-12.5x Notes: (1) Represents terminal multiple for five-year projection, which the advisors "relied more heavily on." (2) Based on Base Case forecast and 13.50% discount rate for base cellular, excluding data, new features, and long distance. (3) Based on Base Case forecast and 12.00% discount rate for cellular, new features, and long distance, excluding data. Note: Non-bracketed data represents stated amount. [Bracketed] data is implied.
Tab C Tab C PRECEDENT TRANSACTIONS PRECEDENT TRANSACTIONS The AT&T/McCaw Transaction ["The most relevant transaction is AT&T's purchase of McCaw." ] While Morgan Stanley agrees that AT&T/McCaw is the most relevant precedent, it is important to understand that McCaw/LIN valuation is in many ways a ceiling not a floor on LIN's standalone valuation. - -- AT&T was able to achieve a level of synergies which no other third party could achieve. - -- Transaction incorporated a valuation premium to reflect the strategic benefit to AT&T's core business of owning both the McCaw and LIN properties. - -- AT&T was able to achieve pooling of interests accounting treatment. - -- Wireless arena has grown more competitive since the AT&T/McCaw transaction was announced. - -- Interest rates have risen almost 200 basis points since the AT&T/McCaw transaction was announced. PRECEDENT TRANSACTIONS Allocation of LIN Purchase Price in AT&T/McCaw Transaction [Factors used in calculating "Imputed Valuation of LIN Based on AT&T/McCaw Transaction": - - "Assumed per POP Value of McCaw's non-LIN Properties" - - "Imputed Value for McCaw's Majority Stake in LIN" "Based upon various qualitative and quantitative measures including the attractive demographics of LIN's markets and their great strategic value, the IDA concluded that LIN's properties are more attractive than McCaw's properties (excluding McCaw's interest in LIN) and therefore, the IDA believes that LIN should command a premium to the McCaw [valuation multiple]."] From a financial perspective, McCaw has historically grown faster and is expected to continue to grow faster than LIN and thus should be accorded an equal or greater EBITDA multiple. From a strategic perspective, LIN without McCaw was no more strategic than McCaw without LIN and thus any strategic premium was for LIN with McCaw. AT&T did not value the LIN properties on a different basis than the McCaw properties. PRECEDENT TRANSACTIONS Applying the AT&T/McCaw Transaction ["A multiple of 1994E EBITDA for the AT&T/McCaw transaction is comparable to a multiple of 1995E EBITDA for the LIN PMVG appraisal, as each is a multiple of a 'closing year' cash flow." "When using a transaction multiple of a precedent transaction to evaluate a current transaction, the IDA believes that it is most appropriate to compare the multiple of forward cash flow of the precedent transaction with the multiple of forward cash flow of the transaction being evaluated." "The IDA believes that the DCF methodology is especially relevant in light of McCaw's decision to accelerate subscriber growth, which will depress operating cash flow in the near term, but which should lead to greater cash flows in the long term."] In practice, this "closing year" cash flow methodology would suggest that LIN was worth $104 per share if sold in 1994 and $154 if sold in 1995 -- a 48% increase in equity value simply from waiting for calendar year 1995 to arrive. Moreover, constant EBITDA multiples from 1994 to 1995 are entirely inconsistent with the IDA's DCF results. PRECEDENT TRANSACTIONS Evidence of Declining Multiples
Multiple of Trailing EBITDA Implied by DCF(1) - ---------------------------------------------------------------------------------------------------------- Valuation Date ----------------------------------------------------------------------- 12/94 12/95 12/96 12/97 12/98 12/99 ----- ----- ----- ----- ----- ----- MS Base Case Unadorned(2) 16.9x 13.7x 12.2x 11.5x 10.9x 10.6x IDA Base Case(3) 23.1x 18.9x 16.6x 15.4x 14.5x 13.8x Notes: (1) EBITDA before corporate overhead. (2) Represents LIN Base Case excluding Wireless Data, New Features and Long Distance, assuming 13.75% WACC and 10.0x exit multiple, resulting in a value of $105/share at 6/30/95. (3) Represents LIN Base Case assuming 13.20% WACC and 11.5x exit multiple, resulting in a value of $155/share at 6/30/95. /TABLE Tab D Tab D REVIEW OF POTENTIAL PURCHASERS REVIEW OF POTENTIAL PURCHASERS Universe of Potential Purchasers [-- "LIN would give instant scale and credibility to any company trying to establish a nationwide communications company." - -- LIN would "serve as the cornerstone of a national wireless strategy." - -- "The IDA believes that a deep market exists for LIN, if sold in its entirety and/or if broken up by market."] It is difficult to believe that a potential purchaser would view LIN as being the cornerstone of a national wireless strategy given that it would need to spend $7Bn or more to obtain control of two markets -- multiples of what it would take to acquire a national PCS footprint. Significant earnings dilution and negative balance sheet impacts would be incurred by any potential purchaser of LIN. A screen of the universe of potential purchasers generates only three feasible potential purchasers for LIN -- MCI, SBC and BellSouth -- each of whom would need to overcome major issues. REVIEW OF POTENTIAL PURCHASERS Summary of Universe of Likely Potential Purchasers Rationale for Exclusion --------------------------------------------------- Company Regulatory Strategic Financial Feasible - --------- ---------- --------- --------- Bidders -------- Bell Atlantic X NYNEX X AirTouch X US West X Ameritech X Pacific Telesis X ALLTEL X TDS X Sprint X X TCI X X GTE X X MCI X SBC Comm. X BellSouth X REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Purchasers: MCI [An acquisition of LIN is inconsistent with the strategic direction of MCI and its significant shareholder BT] Strategic Issues - -- MCI has pursued and terminated other wireless opportunities via alliances and consortia. - -- MCI has declined to participate in the PCS auctions. - -- Analysts have speculated that MCI is most likely to pursue cellular resale on a national scale given its available alternatives to enter wireless. - -- Purchasing LIN would only give MCI control of two markets after spending $7Bn or more. Financial Impacts - -- An acquisition at $105 per share would dilute MCI earnings roughly 30% in 1995, and would still be at least 10% dilutive in 1998. - -- A $7Bn acquisition of LIN financed principally with debt would significantly strain MCI's balance sheet. - -- In addition, MCI's stock has declined almost 30% during 1994 making the issuance of equity problematic. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Purchasers: SBC Comm. [An acquisition of LIN at $105 per share would run contrary to SBC's past demonstration of being a disciplined buyer of cellular properties as well as avoiding significant earnings dilution] Strategic Issues - -- SBC has historically been a disciplined, opportunistic buyer of cellular properties. - -- SBC has passed on buying strategic properties when "asking prices" have exceeded calculated values. - -- SBC would receive no strategic value from purchasing Los Angeles due to LIN's co-control of the market, or Houston, due to SBC's alliance with GTE, -- and it is prohibited from owning Dallas. Financial Impacts - -- An acquisition at $105 per share would dilute SBC's earnings almost 20% in 1995, and significant dilution would persist for several years. - -- Even at $105 per share a meaningful cash component would likely reduce SBC's credit rating from A to BBB or worse. REVIEW OF POTENTIAL PURCHASERS Detailed Review of Individual Purchasers: BellSouth [An acquisition of LIN at $105 per share would seem unlikely given that BellSouth, like SBC, has been a disciplined buyer of cellular properties and has avoided transactions involving significant earnings dilution] Strategic Issues - -- BellSouth, like SBC, has historically been a disciplined buyer of cellular properties at relatively low valuation levels. - -- BellSouth has not made a significant cellular acquisition since it purchased Graphic Scanning in April 1991. - -- Acquiring LIN at $105 per share would cause severe earnings dilution, a hurdle which BellSouth presumably could not overcome when it bid for LIN in 1989. Financial Impacts - -- At $105 per share, an acquisition of LIN would dilute BellSouth's earnings about 15% in 1995 and would persist for several years. - -- Even at $105 per share a meaningful cash component would severely impact BellSouth's credit rating. Tab E Tab E PUBLIC MARKET VALUATION PUBLIC MARKET VALUATION LIN vs. AirTouch ["The IDA believes that if LIN were an independent public company that it would most likely trade at a premium to AirTouch because of its superior collection of properties."] The demographic and operating characteristics of LIN and AirTouch are extremely similar.
Comparison of Demographics and Operations - ----------------------------------------------------------------------------------------------------------- % Workforce in POPs in POPs in % Majority Salaries Commuting Key Cellular Demographics Top 10 Mkts Top 50 Mkts Control >50K Time Industries - ------------ ----------- ----------- ---------- -------- ---------- --------------- LIN 98% 98% 77% 21% 26 40% AirTouch 50 82 83 19 22 36 Rev./ Pene- Sub/ Rev./ EBITDA/ Sub/ Rev. EBITDA EBITDA Operations(1) tration Month POP POP Growth Growth Growth Margin - ------------- ------- ----- ------ ------- ------ -------- ------- ------ LIN 4.25% $83 $37 $15 44% 31% 16% 42% AirTouch 4.40% 73 33 $14 49 28 26 42 Note: (1) As of year-end 1994. /TABLE PUBLIC MARKET VALUATION Implied LIN Trading Value ["The IDA believes that an appropriate EBITDA multiple for LIN were it to trade on an independent stand-alone basis, is 14x 1995E EBITDA."] AirTouch currently trades at 9.8x-11.1x 1995E EBITDA, based on a range of estimates of its international asset value. Implied LIN Trading Value - ---------------------------------------------------------------- Multiple of 1995E EBITDA(1) Implied LIN Share Price(2) - -------------------------------- ----------------------------- 10.0x $77 10.5 82 11.0 87 11.5 92 Notes: (1) Assumes LIN Base Case 1995 projection. (2) Assumes $1,615MM debt, $350MM cash and other assets and 53.3MM fully diluted shares outstanding. PUBLIC MARKET VALUATION AirTouch Trading Analysis
Implied AirTouch Domestic Cellular Valuation ---------------------------------------------------------------------------------- Implied AirTouch Trading Multiple of(1)(2) ----------------------------------------------- Domestic Domestic Range of Revenue ($MM) EBITDA ($MM) International Discount to --------------- ---------------- Asset Values Consensus(3) POPs 1994 1995E 1994 1995E ------------- ------------ ---- ---- ----- ---- ----- 35.0 $1,142 $1,451 $479 $657 $4800 (17.2)% $225 6.9x 5.4x 16.4x 12.0x 5000 (13.8) 219 6.7 5.3 16.0 11.7 5200 (10.3) 213 6.5 5.1 15.6 11.4 Goldman Sachs 5300 (8.6) 210 6.4 5.1 15.4 11.2 - -------------------------------------------------------------------------------------------------------- | 5400 (6.9) 207 6.4 5.0 15.2 11.1 | | 5600 (3.4) 202 6.2 4.9 14.7 10.8 | Consensus | 5800 0.0 196 6.0 4.7 14.3 10.4 | | 6000 3.4 190 5.8 4.6 13.9 10.1 | | 6200 6.9 185 5.7 4.5 13.5 9.8 | - -------------------------------------------------------------------------------------------------------- Morgan Stanley 6300 8.6 182 5.6 4.4 13.3 9.7 6400 10.3 179 5.5 4.3 13.1 9.5 6600 13.8 173 5.3 4.2 12.7 9.2 Merrill Lynch 6700 15.5 170 5.2 4.1 12.4 9.1 6800 17.2 167 5.1 4.0 12.2 8.9 Lehman Brothers 9700 67.2 85 2.6 2.0 6.2 4.5 Notes: (1) Source of 1994 and 1995 estimates: mean of Merrill Lynch and PaineWebber. Estimates are for domestic cellular only. (2) Multiples assume share price of $27.250 as of February 15, 1995. (3) Assumes analyst consensus value of $5.8Bn, based on the following ranges: $4.9-$5.8Bn (Goldman Sachs), $6.2Bn-$7.1Bn (Merrill Lynch), and $5.6-$7.0Bn (Morgan Stanley). Goldman Sachs and Merrill Lynch include $200-$300MM value of Spanish license and $400MM for German license (Morgan Stanley estimates). Consensus excludes Lehman Brothers' 1/11/95 estimate of $9.7Bn.
PUBLIC MARKET VALUATION Analysts' PMV Estimates in Precedent Cellular Transactions [Although analyst PMV estimates average $145 per share for LIN, analyst PMV estimates have been significantly above actual private market transaction prices] Mean Analyst PMV as Premium to Transaction Price ------------------------------------------------ Contel Cellular (10%)/GTE 17% McCaw/AT&T 21% Metro Mobile/Bell Atlantic 35% Contel/GTE 37% Associated/SBC 43% Centel/Sprint 50% US West New Vector (19%)/US West 64% LIN BROADCASTING Valuation Review April 28, 1995 SECTION I Valuation Summary SECTION II Review of Morgan Stanley Valuation Analysis Tab A Review of Operating Projections Tab B Discounted Cash Flow Analysis Tab C Precedent Transactions Tab D Review of Potential Purchasers SECTION III Lehman Brothers/Bear Stearns Valuation Analysis SECTION IV Reconciliation to Public Market SECTION I SECTION I VALUATION SUMMARY OVERVIEW Introduction Morgan Stanley Charter [Morgan Stanley was retained by AT&T Corp. ("AT&T") on behalf of its wholly-owned subsidiary McCaw Cellular Communications, Inc. ("McCaw") to determine the Private Market Value of LIN Broadcasting Corporation ("LIN") as defined by the 1989 Private Market Value Guarantee Agreement as amended.] "...private market value per Share is the private market price per Share (including control premium) that an unrelated third party would pay if it were to acquire all outstanding Shares (including the Shares held by Offeror [McCaw] and its affiliates) in an arm's-length transaction, assuming the Company was being sold in a manner designed to attract all possible participants (including the Regional Bell Operating Companies) and to maximize stockholder value, including if necessary through the sale or other disposition (including tax-free spin-offs, if possible) of businesses prohibited by legal restrictions to be owned by any particular buyer or class of buyers (e.g., the Regional Bell Operating Companies)." Private Market Value Guarantee 3December 11, 1989 VALUATION SUMMARY Basis of Valuation Methodology [In arriving at its view of Private Market Value (as defined) for LIN Broadcasting of $105 per share, Morgan Stanley examined the following, among other things:] - - Intrinsic value implied by LIN Management projections. - - Values implied by precedent transactions. - - Evaluation of potential unrelated third party acquirors of LIN. - - "Allocated" purchase price for LIN in the context of AT&T's acquisition of McCaw/LIN. - - 1995 PMV price for LIN projected by McCaw in 1992 in the context of its financial planning process. - - Evaluation of the 1989 contested battle for LIN. - - Likely public market trading value for LIN absent the PMVG agreement. VALUATION SUMMARY Summary of Valuation Methodologies: Review Price Per Share --------------- Private Market Value Lin Management Intrinsic Value $103-$111 "Adjusted" LIN Management Intrinsic Value $81-$88 Analyst Intrinsic Value $101-$120 "Adjusted" Analyst Intrinsic Value $89-$108 "Allocated" AT&T Purchase Price $98-$112 Public Market Value Comparable Company Trading Value $80-$95 Morgan Stanley PMV View $105 SECTION II SECTION II REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Tab A Tab A REVIEW OF OPERATING PROJECTIONS REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Review of LIN Management's "Base Case" Projections [LIN Management's "Base Case" operating projections include significant non-cellular value] Core Cellular Business + Additional Services = LIN Management -- Wireless Data Base Case -- New Features Operating -- Long Distance Projections REVIEW OF MORGAN STANLEY VALUATION ANALYSIS 1992 LIN Projections vs. Actual Results [Although penetration has increased more than expected, revenue/sub/month has fallen such that revenue per POP has been less than previously forecast]
Penetration Revenue/Sub/Month Revenue/POP ---------------------------- ---------------------------- ---------------------------- 1992(2) 1993(2) 1994(2) 1992(2) 1993(2) 1994(2) 1992(2) 1993(2) 1994(2) ------ ------ ------ ------ ------ ------ ------ ------ ------ Actual LIN 2.33% 3.01% 4.25% $93 $87 $83 $23 $28 $37 10/92 Downside(1) 2.39% 3.11% 3.72% $93 $87 $82 $23 $29 $33 10/92 Base(1) 2.39% 3.13% 3.84% $93 $89 $86 $23 $30 $36 Notes: (1) Represents October 1992 projections, excluding AT&T synergies. (2) Excludes Philadelphia. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS 1992 LIN Projections vs. Actual Results [Due to the decline in revenue/sub/month, more subscribers have supported the same revenue base, dramatically depressing margins and causing EBITDA/POP to fall significantly below projected levels] Marketing/Revenue EBITDA Margin EBITDA/POP ----------------------------- ---------------------------- ----------------------------- 1992(2) 1993(2) 1994(2) 1992(2) 1993(2) 1994(2) 1992(2) 1993(2) 1994(2) ------ ------ ------ ------ ------ ------ ------ ------- ------ Actual LIN 23% 24% 27% 50% 48% 42% $11 $13 $15 Downside(1) 23% 22% 20% 50% 49% 50% $12 $14 $17 Base(1) 23% 19% 17% 50% 53% 54% $12 $16 $19 Notes: (1) Represents October 1992 projections, excluding AT&T synergies. (2) Excludes Philadelphia. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Old LIN Projections vs. Current LIN Projections [Revenue per POP has tracked essentially as predicted, yet future revenue per POP is projected to be well above previous Base Case; EBITDA per POP has fallen well short of projections yet is forecasted to meet previous projections] Revenue/POP EBITDA/POP ------------------------------------- ------------------------------------- 1996 1998 2000 2002 1996 1998 2000 2002 ---- ---- ---- ---- ---- ---- ---- ---- LIN Base Case(1) $55 $71 $83 $96 $25 $33 $39 $47 Lin Base Case $57 $76 $93 $102 $26 $35 $45 $56 10/92 Downside $42 $50 $59 $68 $24 $29 $35 $41 10/92 Base $48 $59 $70 $81 $28 $36 $44 $52 Note: (1) Excludes Wireless Data, New Features and Long Distance.
REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Review of LIN Operating Projections [LIN Management projections appear to have several inconsistencies -- one example is the way capital expenditures are projected] LIN Management projections for capital expenditures are low on two bases: - -- Annual capital expenditures per net customer addition declines in the face of projected increases in subscriber usage. - -- Annual capital expenditures do not seem to factor in replacement cost as the projected net PP&E increases through the year 1998 yet declines thereafter. This forecast appears to be inconsistent with the fundamental assumption of LIN Management that increased revenues will come because "average minutes of use are expected to increase because of lower rates per minute, more user friendly phones, improved quality, longer battery lives and new features and services on the network." Projected Capital Expenditures(1) ----------------------------------------- 1996 1998 2000 2002 2004 ---- ---- ---- ---- ---- Net PP&E ($MM) $919 $1055 $991 $784 $461 NET PP&E per Sub ($) $444 $365 $270 $180 $96 Note: (1) LIN base case projections exclude Wireless Data, New Feature and Long Distance. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Other Projected Revenue Streams [LIN Management "Base Case" also includes other revenue streams for which potential buyers are unlikely to assign significant value] Wireless Data - -- Appropriately valued, wireless data opportunities represent only $5 - $6 per share of value. - -- Buyers of cellular properties are likely to assign little if any value to the wireless data opportunity. Other Features - -- Includes "yet to be identified" features. - -- Would represent only an additional $3 per share of value. Long Distance - -- Strategic buyers unable to capitalize on this revenue stream. Tab B Tab B DISCOUNTED CASH FLOW ANALYSIS REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Financial Parameters [An appropriate discount rate for LIN is in the range of 13 - 14% which, combined with long-term growth rates of 6.5 - 7.5%, implies exit multiples of 9.5 - 10.5x] Implied Exit Multiple of 2004 EBITDA(1)(2) ----------------------------------------- Discount Rate ------------------------------- 13.00% 13.50% 14.00% ------ ------ ------ Perpetual Growth Rate of FCF 6.0% 9.2 8.6 8.1 6.5% 9.9 9.2 8.6 7.0% 10.8 10.0 9.3 7.5% 11.8 10.9 10.1 8.0% 13.1 11.9 11.0 Notes: (1) Assumes FCF/EBITDA ratio of 57% in perpetuity. (2) Represents multiple of trailing EBITDA, based on FCF x (1 + growth rate) x (1 + WACC) ^0.5/(WACC - growth rate). REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Discounted Cash Flow Analysis [Applying a 13.5% discount rate and 9.5-10.5x exit multiples to LIN Management Base Case yields DCF values of approximately $105; modest sensitivity analysis results in values of approximately $85-95] DCF Valuation -------------------- Low(1) High(2) ------ ------- LIN Management Base Case $103 $111 Adjusted for Higher Marketing Costs 92 99 Additionally Adjusted for Replacement Capital Expenditures 81 88 Notes: (1) Low value based on WACC of 13.50% and 2004 EBITDA exit multiple of 9.5 as of 2/15/95. (2) High value based on WACC of 13.50% and 2004 EBITDA exit multiple of 10.5 as of 2/15/95. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Analyst Intrinsic Values [Analyst operating projections for LIN include AT&T synergies] "The logic in better results for LIN than the industry overall is basically related to the demographics of its markets, combined with the benefits of being owned by AT&T." Frank Governali - First Boston January 12, 1995 "LIN is clearly a significant beneficiary of the transaction, because all of the benefits accruing to McCaw automatically accrue to LIN. Barry Kaplan - Goldman Sachs November 24, 1992 "The AT&T strategic alliance should result in higher market share and lower costs and thus higher cash flows and values. The AT&T brand name is one of the most formidable in the country . . . McCaw and LIN would also have access to AT&T's customer lists, its salespeople, and its phone centers, at which wireless service would be sold . . . For McCaw and LIN, enhanced market share and lower costs should raise values as well." Dennis Leibowitz - DLJ November 17, 1992 REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Analyst Intrinsic Values [Analysts' projections for LIN yield DCF values of $101-120 including AT&T valued-added and values of $89-108 excluding such operating synergies] Analysts' Intrinsic Valuations (1) - ----------------------------------------------------------------- Analyst DCF Value Estimated DCF value w/o - ------------------- ------------ AT&T Value-Added(4) ----------------------- Goldman Sachs $110 - 120 $98 - 108 Salomon Brothers(2) 109-120 97-108 Merrill Lynch 108-119 96-107 First Boston(3) 101-110 89-98 Notes: (1) Represents DCF value as of 2/15/95 based on analysts' projections, 13.50% WACC, and 10-11x exit multiples in 2000. (2) Assumes Base Case CapEx projections. (3) Based on 9.5-10.5x exit multiple in 2004. (4) Reflects DCF value less $12/share, based on mean increase in PMV estimates after announcement of AT&T/McCaw merger. Tab C Tab C PRECEDENT TRANSACTIONS REVIEW OF MORGAN STANLEY VALUATION ANALYSIS [Even in the most robust period for cellular valuations, few if any cellular properties were ever sold for $300 per POP...]
Selected Precedent Cellular Transactions--per POP Benchmarks - ------------------------------------------------------------------------------------------------------------ Date Aggregate Cellular Announced Acquiror Acquiree Type of Deal Value Value/POP - --------- --------------- ------------------ ------------ ($MM) --------- ----------- Dec 94 GTE Contel Cellular 10% Stake $460 $198 Nov 94 SNET Bell Atlantic/NYNEX (New England Property) Acquisition 450 199 Oct 94 LIN CSI (New York cellular) 5% Stake 145 185 Feb 94 SBC Comm. Associated Comm. Acquisition 680 187 Nov 93 SBC Comm. GTE (Dallas cellular) 10% Stake 124 280 Aug 93 AT&T McCaw Cellular Acquisition 17,616 268 Mar 92 Comcast Metromedia (Philadelphia) Acquisition 1,100 214 Sept 91 Bell Atlantic Metro Mobile Acquisition 2,375 204 May 90 LIN Metromedia (New York cellular) 48% Stake 1,941 275 Sep 89 McCaw LIN Deferred Purchase 7,400 269 [However, EBITDA multiples have become the standard measure of calibrating private market deals -- with transactions clustered at or below 13x 1995 EBITDA] Selected Precedent Cellular Transactions -- EBITDA Multiple Benchmark - --------------------------------------------------------------------------------------------------------- Aggregate Cellular Value/EBITDA Date Closed Acquiror Acquiree Type of Deal Value --------------------- - ----------- --------------- --------------- ------------ ($MM) 1994 1995 --------- ---- ---- Pending GTE Contel Cellular 10% Stake $460(1) 19x(1) 13x(1) Dec 94 SBC Comm. Associated Comm. Acquisition 699 17(2) 13(3) Sep 94 AT&T McCaw Cellular Acquisition 16,805 16 13(3) Nov 93 SBC Comm. GTE (Dallas Cellular) 10% Stake 124 13(4) 10(3) Notes: (1) Pending. Based on announced value. (2) Based on Associated Proxy Statement. (3) Assumed 25% growth in EBITDA. (4) Assumes revenues 150% of LIN's Dallas market revenues and a 35% EBITDA margin.
REVIEW OF MORGAN STANLEY VALUATION ANALYSIS The AT&T/McCaw Transaction [The single most relevant precedent transaction in determining the PMV of LIN is AT&T's acquisition of McCaw, although the precedent does have its limitations] While AT&T/McCaw is the most relevant precedent, it is important to understand that McCaw/LIN valuation is in many ways a ceiling not a floor on LIN's standalone valuation. - -- AT&T was able to achieve a level of synergies which no other third party could achieve. - -- Transaction incorporated a valuation premium to reflect the strategic benefit to AT&T's core business of owning both the McCaw and LIN properties. - -- AT&T was able to achieve pooling of interests accounting treatment. - -- Wireless arena has grown more competitive since the AT&T/McCaw transaction was announced. - -- Interest rates have risen almost 200 basis points since the AT&T/McCaw transaction was announced. REVIEW OF MORGAN STANLEY VALUATION ANALYSIS The AT&T/McCaw Transaction [At announcement, AT&T's expected 9/94 purchase price of $16.2Bn implied an acquisition price at 9/94 for the LIN shares of $98 - $112] Implied LIN Share Price based on AT&T/McCaw Transaction Multiples and Analyst Estimates Implied Value at Announcement (1) --------------------------------------------- Basis First Boston DLJ Goldman - ----- (7/93) (7/93) (11/92) ------------ ---------- --------- 1994 Revenue $103 $100 $102 1994E EBITDA(2) 111 108 112 1995E Revenue NA 98 101 1995E EBITDA(2) NA 104 111 Average $107 $103 $106 POPs 106 106 106 Notes: (1) Based on same multiple applied to McCaw and LIN operating estimates. Analyst estimates are adjusted to exclude Philadelphia. (2) EBITDA is before corporate overhead. Tab D Tab D REVIEW OF POTENTIAL PURCHASERS REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Summary of Universe of Likely Potential Purchasers [Only a small number of potential buyers could be expected to show a serious interest in purchasing all of LIN] Rationale for Exclusion Feasible Company Regulatory Strategic Financial Bidders - ---------- ---------- --------- --------- -------- Bell Atlantic X NYNEX X AirTouch X US West X Ameritech X Pacific Telesis X ALLTEL X TDS X Sprint X X TCI X X GTE X X MCI X SBC Comm. X BellSouth X REVIEW OF MORGAN STANLEY VALUATION ANALYSIS Detailed Review of Individual Potential Purchasers [Even these three most likely purchasers would face significant transaction hurdles in acquiring LIN] MCI -- Acquisition of LIN potentially inconsistent with MCI's wireless strategy. -- An acquisition of LIN at $105 per share would dilute earnings by 30% in 1995, and have severe impacts on MCI's balance sheet. -- An acquisition of LIN by MCI also seems inconsistent with the strategic direction of its significant shareholder, BT. SBC -- Almost 50% of LIN's assets would be non-strategic: - SBC is prohibited from owning Dallas. - The alliance with GTE obviates the need to acquire an interest in Houston. - LIN's interest in Los Angeles does not offer SBC control. -- An acquisition of LIN at $105 per share would dilute earnings by 20% in 1995, and have significant impacts on SBC's balance sheet. BellSouth -- BellSouth has proven a disciplined buyer of cellular properties in the past, purchasing assets on an opportunistic basis. -- Given BellSouth's decision to pass on LIN in 1989 when dilution became significant, it seems unlikely that it would seek to purchase LIN when the earnings dilution would be significantly higher. -- An acquisition of LIN at $105 per share would dilute earnings by 20% in 1995, and have significant negative impacts on BellSouth's balance sheet. SECTION III SECTION III LEHMAN BROTHERS/BEAR STEARNS VALUATION ANALYSIS LEHMAN BROTHERS/BEAR STEARNS VALUATION ANALYSIS Overview of Arguments [Lehman Brothers/Bear Stearns employed the following methodologies and assumptions in arriving at their view of Private Market Value as defined]
Methodology/Assumption Issues Raised Discounted Cash Flow - -- Operating Projections per LIN Management Base Case -- Core cellular projections aggressive -- Includes non-core cellular revenues - -- Financial Parameters -- Methodological differences - Discount Rates of 11-13% - Exit Multiples of 10.5-12.5x - -- Interpretation of DCF Results -- Buyers may not pay full DCF value Precedent Transactions - -- AT&T/McCaw Transaction -- Allocation of purchase price between McCaw/LIN - -- "Closing Year" Methodology -- Flawed application Potential Purchasers - -- Unclear -- Depth of market/purchaser appetite /TABLE LEHMAN BROTHERS/BEAR STEARNS VALUATION ANALYSIS Financial Parameters [Morgan Stanley calculated the appropriate cost of capital for LIN to be 13-14%, which is consistent with discount rates used by other financial advisors in cellular transactions] Summary of WACC Calculations ---------------------------- Morgan Stanley Estimate 13.00 - 14.00% Other Financial Advisors(1) 12.14 - 14.14% Lehman Brothers/Bear Stearns 11.00 - 13.00% Lehman Brothers/Bear Stearns, adjusted(2) 13.59 - 13.83% ... this difference flows through to exit multiple calculation Summary of Exit Multiple Calculations ------------------------------------- Morgan Stanley Estimate 9.5x - 10.5x Lehman Brothers/Bear Stearns Estimate 10.5x - 12.5x Lehman Brothers/Bear Stearns, adjusted(3) 8.2x - 9.4x Notes:(1) Average of discount rates used by four other financial advisors, adjusted for change in U.S. Treasury rates since the dates of their estimates. (2) Based on Lehman/Bear Stearns' methodology, using LIN asset beta of 0.98, 7.44% risk-free rate, 7.22% market risk premium, 35% debt/capital, and cost of debt of 11.0-13.0%. (3) Assumes exit multiple calculated as .577x/(WACC-growth rate). WACC adjusted from 12.0% to 13.5%, using 7.38% and 6.50% implied growth rates. LEHMAN BROTHERS/BEAR STEARNS VALUATION ANALYSIS Wireless Data Value (1) [These differences are compounded further when wireless data has significantly greater risk characteristics than existing cellular] Value per Total Value LIN Share ($) ($MM) -------------- ------------ LIN BASE CASE 11.5x 2004 EBITDA 12.00% WACC $25.56 $1,362 10.0x 2004 EBITDA 20.00% WACC $11.87 $633 LIN's 25% of MCaw WDD Business Plan 10.0x 2000 EBITDA 20.00% WACC $5.66 $322 MS Estimate of Third-Party Bidder's view N.M. N.M. Note: (1) Values as of 2/15/95. LEHMAN BROTHERS/BEAR STEARNS VALUATION ANALYSIS Implied LIN Values in the AT&T/McCaw Transaction [A PMV of $105 per share for LIN implies multiples that are consistent with, and give LIN a premium over, those observed in the AT&T/McCaw transaction -- a PMV of $155 implies multiples that are inconsistent with the AT&T/McCaw transaction and yield an unjustifiable premium] Cellular Asset Value as Multiple of: Cellular ------------------------ Asset Value 1994 1994 PMV ($MM) EBITDA Revenue POPs ----- ----------- ------ ------- ---- LIN Statistic ($MM) $389.8 $924.9 25,722 Morgan Stanley PMV Estimate $105 $6,862 17.6x 7.4x $267 AT&T/McCaw Closing Multiple(1) 16.1 6.9 247 Implied McCaw-only Multiple(2) 15.8 6.8 240 Implied LIN Premium 11% 9% 11% Lehman/Bear Stearns PMV Estimate $155 $9,527 24.4x 10.3x $370 AT&T/McCaw Closing Multiple(1) 16.1 6.9 247 Implied McCaw-only Multiple(2) 13.9 6.0 211 Implied LIN Premium 75% 72% 75% Notes: (1) Based on cellular asset value of $15.24 Bn, 1994E revenue and EBITDA estimates of $2,205 and $946MM from 9/30/94 Salomon Brothers report, adjusted pro forma for exchange of Philadelphia POPs and addition of New York POPs. (2) Based on McCaw cellular asset value of $15.24 Bn, less 52% of cellular asset value implied by PMV. LEHMAN BROTHERS/BEAR STEARNS VALUATION ANALYSIS Comparing McCaw to LIN: Operating Performance [Close examination of the actual operating performance of McCaw and LIN shows that the properties are indeed quite comparable] The true measure of a property's value is its operating performance, not its demographics. Despite being concentrated in large markets, LIN's POPs have not demonstrated significantly superior operating performance to those of McCaw. LTM 6/30/94 McCaw (Only) LIN (ex Phil.) % Premium - ------------- ------------ -------------- --------- Penetration 3.66% 3.57% -2% Revenue/Sub/Month $82 $85 4% Marketing as % of Revenue 25% 25% 1% EBITDA/Sub/Month $35 $38 9% EBITDA Margin 42% 44% 5% Revenue/POP $30.00 $30.91 3% EBITDA/POP $12.62 $13.64 8% LEHMAN BROTHERS/BEAR STEARNS VALUATION ANALYSIS Comparing McCaw to LIN: Market Size [As further confirmation that market size alone does not translate into superior operating performance, one need look no further than LIN's own markets] Revenue/POP EBITDA/POP ---------------- ---------------- 1994 1995 1994 1995 ------ ------ ------ ------ Houston $42.19 $55.17 Houston $19.14 $26.82 Dallas $41.38 $53.17 Dallas $17.07 $23.29 LA $37.29 $46.61 LA $17.74 $23.34 NY $33.56 $41.95 NY $13.53 $18.94 LEHMAN BROTHERS/BEAR STEARNS VALUATION ANALYSIS Consistent Application of Transaction Multiples [Precedent multiples are simply ratios designed to normalize sale values for differential financial performance and thus must be consistently applied] Adjusted Precedent Sale Price = Implied LIN Value [large - ----------------------------- ----------------- green Precedent Company 1994 EBITDA LIN 1994 EBITDA check] Adjusted Precedent Sale Price = Implied LIN Value [large - ----------------------------- ----------------- green Precedent Company 1995 EBITDA LIN 1995 EBITDA check] Adjusted Precedent Sale Price [does Implied LIN Value [large - ----------------------------- not ----------------- red x] Precedent Company 1994 EBITDA equal] LIN 1995 EBITDA LEHMAN BROTHERS/BEAR STEARNS VALUATION ANALYSIS Applying the AT&T/McCaw Transaction to LIN [Perhaps the best way to illustrate the fallacy of the "closing year" cash flow multiple methodology is to use an example] Lehman Brothers/Bear Stearns state: "A multiple of 1994E EBITDA for the AT&T/McCaw transaction is comparable to a multiple of 1995E EBITDA for the LIN PMVG appraisal as each is a multiple of a "closing year cash flow." In practice, this would suggest that at a 17.5x "closing year" multiple, LIN was worth $104 per share if sold in 1994 and $154 if sold in 1995 -- a 48% increase in equity value simply by waiting for calendar year 1995 to arrive. "1994 Closing" "1995 Closing" -------------- -------------- Closing Year EBITDA $390 $535 * Closing Year Multiple 17.5x 17.5x = Closing Year Asset Value $6,822 $9,356 - - Closing Year Net Debt (1,265) (1,124) ------- ------- = Closing Year Equity Value 5,556 8,231 / Closing Year Shares Outstanding 53.3 53.3 = Per Share Equity Value $104 $154 % Increase 48% SECTION IV SECTION IV RECONCILIATION TO PUBLIC MARKET VALUE RECONCILIATION TO PUBLIC MARKET VALUE LIN Historical Price Performance vs. Selected Analyst Current PMV Estimates [LIN's trading value has closely followed research analysts' estimates of 1995 PMV] The following information is depicted on a single graph: Price Per Share - --------------------------------------------------------- Date LINB Closing PV of All-American Price(1) 1995 PMV Estimate(2) - --------- --------------- ---------------------- 08-Jan-94 97.5 15-Jan-94 95.75 22-Jan-94 99 25-Jan-94 99.53 29-Jan-94 103 - -------------------------------------------------------- 05-Feb-94 103 12-Feb-94 101.38 19-Feb-94 102.75 26-Feb-94 99.25 - -------------------------------------------------------- 05-Mar-94 100.75 09-Mar-94 107.42 12-Mar-94 99.38 19-Mar-94 98.5 26-Mar-94 100 - -------------------------------------------------------- 02-Apr-94 95.5 09-Apr-94 93.25 14-Apr-94 104.69 16-Apr-94 93.25 19-Apr-94 104.89 23-Apr-94 93 30-Apr-94 93.75 - -------------------------------------------------------- 05-May-94 108.94 07-May-94 100 11-May-94 110.05 14-May-94 99.75 16-May-94 119.66 21-May-94 103.25 28-May-94 106 31-May-94 115.19 - -------------------------------------------------------- Notes: (1) Reflects closing stock price, less $12/share prior to spin-off of LIN TV. (2) Represents 1995 PMV estimate, discounted at 15% from June 30, 1995. Price Per Share - --------------------------------------------------------- Date LINB Closing PV of All-American Price(1) 1995 PMV Estimate(2) - --------- --------------- ---------------------- 04-Jun-94 107 10-Jun-94 111.32 11-Jun-94 107.5 14-Jun-94 112.35 18-Jun-94 107.5 25-Jun-94 103.25 - -------------------------------------------------------- 02-Jul-94 108.5 09-Jul-94 108 16-Jul-94 113.25 23-Jul-94 113.25 30-Jul-94 113 - -------------------------------------------------------- 04-Aug-94 123.38 06-Aug-94 114.38 13-Aug-94 115 20-Aug-94 117 27-Aug-94 120.25 31-Aug-94 124.66 - -------------------------------------------------------- 03-Sep-94 122.13 10-Sep-94 124.25 17-Sep-94 127 21-sep-94 123.88 24-Sep-94 127.5 - -------------------------------------------------------- 01-Oct-94 127.13 08-Oct-94 123.25 15-Oct-94 124 22-Oct-94 123.25 29-Oct-94 124.5 - -------------------------------------------------------- 05-Nov-94 126.25 12-Nov-94 128 19-Nov-94 128.13 26-Nov-94 127.13 - -------------------------------------------------------- 03-Dec-94 130.5 10-Dec-94 128.38 15-Dec-94 134.46 17-Dec-94 130 21-Dec-94 129.2 24-Dec-94 133.25 31-Dec-94 133.5 - -------------------------------------------------------- Notes: (1) Reflects closing stock price, less $12/share prior to spin-off of LIN TV. (2) Represents 1995 PMV estimate, discounted at 15% from June 30, 1995. Price Per Share - --------------------------------------------------------- Date LINB Closing PV of All-American Price(1) 1995 PMV Estimate(2) - --------- --------------- ---------------------- 05-Jan-95 133.55 07-Jan-95 132.25 14-Jan-95 134.75 21-Jan-95 137.63 24-Jan-95 136.54 28-Jan-95 138 - -------------------------------------------------------- 04-Feb-95 139.13 10-Feb-95 138.75 15-Feb-95 140.5 - -------------------------------------------------------- Notes: (1) Reflects closing stock price, less $12/share prior to spin-off of LIN TV. (2) Represents 1995 PMV estimate, discounted at 15% from June 30, 1995. RECONCILIATION TO PUBLIC MARKET VALUE LIN Historical Price Performance vs. Selected Analyst 1995 PMV Estimates [PMV estimates have been repeatedly increased as analysts have continuously revised upward their 1995 PMV estimates as LIN shares traded through their target ranges] The following information is depicted on a single graph:
Price Per Share(1) - -------------------------------------------------------------------------------------------------------- Date LIN(1) Merrill DLJ Prudential Goldman Cowen Salomon - --------------------------------------------------------------------------------------------------------- 08-Jan-94 97.5 15-Jan-94 95.75 22-Jan-94 99 121.5 29-Jan-94 103 05-Feb-94 103 12-Feb-94 101.38 19-Feb-94 102.75 26-Feb-94 99.25 05-Mar-94 100.75 12-Mar-94 99.38 129 19-Mar-94 98.5 26-Mar-94 100 02-Apr-94 95.5 09-Apr-94 93.25 16-Apr-94 93.25 124 130 23-Apr-94 93 124 30-Apr-94 93.75 07-May-94 100 129 128 14-May-94 99.75 140.5 21-May-94 103.25 28-May-94 106 134 04-Jun-94 107 11-Jun-94 107.5 129 130 18-Jun-94 107.5 25-Jun-94 103.25 02-Jul-94 108.5 09-Jul-94 108 16-Jul-94 113.25 23-Jul-94 113.25 30-Jul-94 113 06-Aug-94 114.38 140.5 13-Aug-94 115 20-Aug-94 117 27-Aug-94 120.25 140 03-Sep-94 122.13 10-Sep-94 124.25 17-Sep-94 127 24-Sep-94 127.5 138 01-Oct-94 127.13 08-Oct-94 123.25 15-Oct-94 124 22-Oct-94 123.25 29-Oct-94 124.5 05-Nov-94 126.25 12-Nov-94 128 19-Nov-94 128.13 26-Nov-94 127.13 03-Dec-94 130.5 10-Dec-94 128.38 17-Dec-94 130 142.5 145 24-Dec-94 133.25 139 31-Dec-94 133.5 07-Jan-95 132.25 145 14-Jan-95 134.75 21-Jan-95 137.63 145.3 145 144.7 28-Jan-95 138 04-Feb-95 139.13 10-Feb-95 138.75 15-Feb-95 140.5 Note: (1) Reflects closing stock price, less $12/share prior to spin-off of LIN TV. RECONCILIATION TO PUBLIC MARKET VALUE Selected Analyst 1995 PMV Estimates and Revisions [Analysts raised their PMV estimates after the AT&T/McCaw merger announcement, despite the fact that the transaction represented no new information about LIN's PMV as defined] 1995 PMV Estimate(1) (ex-TV) ----------------------------------------------------------------- Pre-Merger (11/92-8/93)(3) Post-Merger (after 8/16/93)(2) -------------------------- ------------------------------ PMV Date PMV Date ------- --------- ---------- --------- DLeibowitz DLJ* $123 7/9/93 $137 5/31/94 SPassoni Smith Barney/Cowen* $123 11/16/92 $128 5/5/94 JBauer Prudential* $108 8/2/93 $128 3/9/94 FGovernali CSFB $118 11/6/92 $133 2/18/94 PJurczak Merrill/Nomura $111 5/4/93 $128 2/22/94 CPhillips Shearson Lehman/Smith Barney $113 2/19/93 $113 4/7/94 Mean $116 $128 *Institutional Investor All-American Notes: (1) Reflects estimated 1995 PMV per share price less $12/share assumed value attributed to TV spin-off. (2) Represents first estimate after announcement of AT&T/McCaw merger on August 16, 1993 (based on Investext). (3) Represents last estimate prior to announcement of AT&T/McCaw merger on August 16, 1993.
RECONCILIATION TO PUBLIC MARKET VALUE Analysts' PMV Estimates in Precedent Cellular Transactions [Moreover, analysts' PMV estimates have typically been 35% above actual private market transaction prices] Mean Analyst PMV as Premium to Transaction Price ------------------------------------------------ Contel Cellular (10%)/GTE 17% McCaw/AT&T 21% Metro Mobile/Bell Atlantic 35% Contel/GTE 37% Associated/SBC 43% Centel/Sprint 50% US West New Vector (19%)/US West 64% EXHIBIT (b)(4) Materials prepared by Bear Stearns & Co., Inc. and Lehman Brothers Inc. February 15, 1995 Committee of Independent Directors LIN Broadcasting Corporation 5295 Carillon Point Kirkland, WA 98033 Attention: William G. Herbster Wilma H. Jordan Richard W. Kislik Ladies and Gentlemen: We understand that, pursuant to the Private Market Value Guarantee ("PMVG") dated December 11, 1989, as amended, between LIN Broadcasting Corporation ("LIN" or the "Company") and McCaw Cellular Communications, Inc. ("McCaw"), which has since been acquired by AT&T Corp. ("AT&T"), the LIN Independent Directors' Appraiser must determine the Private Market Value per Share of LIN. We also understand that Private Market Value per Share is defined in the PMVG as "the private market price per Share (including control premium) that an unrelated third party would pay if it were to acquire all outstanding Shares (including the shares held by the Offeror [McCaw] and its affiliates) in an arm's-length transaction, assuming that the Company was being sold in a manner designed to attract all possible participants (including the Regional Bell Operating Companies) and to maximize stockholder value, including if necessary through the sale or other disposition (including tax-free spin-offs, if possible) of businesses prohibited by legal restrictions to be owned by any particular buyer or class of buyers (e.g., the Regional Bell Operating Companies)." You have asked us, acting jointly with Lehman Brothers Inc. ("Lehman Brothers"), as the Independent Directors' Appraiser, to determine the Private Market Value of LIN per Share as contemplated by the PMVG. Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 2 Pursuant to the PMVG, acting jointly with Lehman Brothers, we determined our "initial view" of the Private Market Value per Share of LIN and thereafter consulted with Morgan Stanley & Co. Incorporated, the Offeror's Appraiser, with respect thereto. This letter sets forth our final view of the Private Market Value per Share of LIN, pursuant to the PMVG. A summary of our analyses used to determine the Private Market Value per Share is included in the report dated February 14, 1995, delivered by us to the Committee of Independent Directors (the "Report"). In the course of our analyses for determining the Private Market Value per Share of LIN, we have: 1. reviewed the PMVG; 2. reviewed LIN's Annual Reports to Shareholders and Annual Reports on Form 10-K for the years ended December 1990 through 1993, and its Quarterly Reports on Form 10-Q for the periods ended March 31, 1994, June 30, 1994 and September 30, 1994; 3. reviewed certain operating and financial informations including projections, provided to us by the management of LIN relating to its business, operations and prospects; 4. met with certain members of LIN's and McCaw's senior managements to discuss LIN's business, operations, historical financial results, financial condition and prospects; 5. visited LIN's facilities in Kirkland, WA, Los Angeles, CA, New York, NY, and Dallas, TX; Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 3 6. reviewed various business, financial and legal information and documents relating to LIN and its subsidiaries and partnerships including a review of the organizational structure, partnership agreements, tax bases and loan documentation, provided to us by LIN; 7. reviewed the historical prices and trading volume of the common stock of LIN; 8. performed discounted cash flow analyses, including discounted cash flow analyses based on the projections provided by the management of LIN; 9. reviewed publicly available financial data, stock market performance data and valuation parameters of certain other companies which we deemed relevant: 10. reviewed the terms of AT&T's acquisition of McCaw and the terms of certain other precedent acquisitions or cellular companies which we deemed relevant; 11. reviewed potential third-party interest in an acquisition of or an investment in LIN, including the possibility of tax-efficient transaction structures (although, at your direction, we did not contact any third parties to determine their potential interest); 12. reviewed historical operating and financial results of the wireless industry and Wall Street research analysts' and cellular industry experts' analyses of the prospects and projected trends of the wireless industry. 13. reviewed Wall Street research analysts' and cellular industry experts' analyses and estimates of the Private Market Value per Share of LIN; and Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 4 14 conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In addition to the foregoing, we considered LIN's unique position in the wireless industry, including its control or shared control of four of the country's ten largest cellular markets, its large number of subscribers and substantial revenues and its superior historical operating measures in comparison to other publicly traded cellular companies. In the course of our review, we have assumed and relied upon the accuracy and completeness of the financial and other information provided to us by LIN or otherwise used by us. With respect to LIN's projected financial results. we have assumed that the "base case" and "upside case" financial projections provided by LIN have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of LIN as to the Company's expected future financial performance. We also reviewed and considered the "sensitivity case" financial projections derived by us from the "base case" financial projections provided by LIN, and we reviewed and considered financial projections for LIN prepared and provided to us by McCaw. We have not assumed any responsibility for independent verification of the information or projections provided to us and we have further relied upon the assurances of the management of LIN that they are unaware of any facts that would make such information or projections inaccurate, incomplete or misleading. In arriving at our final view of Private Market Value per Share, we have not performed or obtained any independent evaluation or appraisal of the assets or liabilities of LIN. Our view of the Private Market Value per Share is as of the date hereof but, with the consent of the Committee of Independent Directors of Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 5 LIN, assumes a closing date for an acquisition of LIN of June 30, 1995. Our view is necessarily based on economic, market and other conditions, and information as they exist on, and can be evaluated as of, the date hereof. Based upon and subject to the foregoing, our final view pursuant to the PMVG is that the Private Market Value per Share or LIN as of the date hereof, but assuming a closing date for an acquisition of LIN of June 30, 1995, is $155. We and Lehman Brothers will each receive a fee for acting jointly as the Independent Directors' Appraiser in connection with the appraisal process specified in the PVMG, payment of a significant portion of which is contingent upon the consummation of the acquisition of LIN's public minority shares by AT&T or an acquisition of LIN by a third party. In addition, LIN has agreed to indemnify us and Lehman Brothers for certain liabilities which may arise out of the rendering of this letter. We have performed various investment banking services for AT&T in the past (including the underwriting of debt and equity securities) and have received customary fees for such services. In the ordinary course of our business, we actively trade the debt and equity securities of LIN and AT&T for our own account and for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities. Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 6 This letter and the Report are solely for the use of LIN and the Committee of Independent Directors of LIN in connection with the PMVG, and may not be used for any other purpose or relied upon by any third party (other than the Offeror's Appraiser and the Mutually Designated Appraiser pursuant to the PMVG), without the prior written approval of Bear Steans and Lehman Brothers, although this letter and the Report may be disclosed in filings made by LIN with the Securities and Exchange Commission and in communications by LIN to its stockholders. Very truly yours, BEAR, STEARNS & CO. INC. April 28, 1995 Committee of Independent Directors LIN Broadcasting Corporation 5295 Carillon Point Kirkland, WA 98033 Attention: William G. Herbster Wilma H. Jordan Richard W. Kislik Ladies and Gentlemen: We understand that, pursuant to the Private Market Value Guarantee (the "PMVG"), dated December 11, 1989, between LIN Broadcasting Corporation ("LIN") and McCaw Cellular Communications, Inc. ("McCaw"), which has since been acquired by AT&T Corp. ("AT&T"), AT&T, the beneficial owner of approximately 52% of the outstanding shares of LIN, has proposed (the "AT&T Proposal") to purchase all Public Shares (as defined in the PMVG) in accordance with the process set forth in the PMVG. Acting jointly with Lehman Brothers Inc. ("Lehman") as the Independent Directors' Appraiser (as defined in the PMVG), pursuant to the PMVG, we have previously determined and delivered to you, in our separate letters of February 15, 1995 (the "February 15 Letters"), our "final view" of "private market value per Share" (as defined in the PMVG). You have requested our view, acting jointly with Lehman, as to whether there is a substantial likelihood that the price at which Public Shares would initially trade, on a fully distributed basis, would be less than $127.50 per share, assuming the AT&T Proposal were not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders (as defined in the PMVG) and assuming no change in market, economic, financial and other conditions (including, without limitation, conditions affecting the cellular industry generally or LIN specifically) as they exist on and can be evaluated as of the date hereof. Based on (i) the factors set forth in the February 15 Letters, which factors we considered as of such date in connection with our arriving at our view of "private market value per Share," (ii) certain additional factors we have considered and analyses we have performed as of the date hereof, including a review of (a) the Form 10-K of LIN for the year ended December 31, 1994, and other publicly available financial data, stock market performance data, ownership profiles and valuation parameters of LIN that have been made available since the date of the February 15 Letters and that we deemed relevant, (b) publicly available financial data, stock market performance data, ownership profiles and valuation parameters of certain other companies that have been made available since the date of the February 15 Letters and that we deemed relevant, (c) Wall Street research analysts' views of the public market trading value of LIN's stock in the event the AT&T Proposal is not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders and (d) such other analyses that we deemed relevant and (iii) the ongoing protections afforded to the holders of Public Shares under the PMVG in the event that the AT&T Proposal is not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public 2 Stockholders, and subject to the succeeding paragraphs of this letter and the general qualifications and assumptions set forth in the February 15 Letters, it is our view that, assuming (x) the vote of the holders of Public Shares regarding the AT&T Proposal were held and the AT&T Proposal failed to be approved by a Majority Vote of the Public Stockholders, (y) Public Shares held by arbitrageurs and others who are holding such shares in anticipation of consummation of the AT&T Proposal or an alternative transaction were fully redistributed and (z) there were no change in market, economic, financial and other conditions (including, without limitation, conditions affecting the cellular industry generally or LIN specifically) as they exist on and can be evaluated as of the date hereof, there is a substantial likelihood that the price at which Public Shares would initially trade would be less than $127.50 per share. The estimation of public market trading prices of securities is subject to uncertainties and contingencies, all of which are difficult to predict and beyond the control of the firm making such estimates. The market prices of securities will fluctuate with changes in market conditions, the conditions and prospects of the industry and the particular company involved, and other factors which generally influence the prices of securities. Our view is necessarily based on market, economic, financial and other conditions as they exist on and can be evaluated as of the date hereof. In addition, we have assumed, with your permission, that AT&T has no intention to acquire Public Shares in the event that the AT&T Proposal is not consummated. There can be no assurance that our view expressed herein will conform with actual public market trading prices of LIN's shares. 3 Our view stated herein does not constitute an opinion as to the fairness of the AT&T Proposal in any respect, and does not constitute a recommendation to any shareholder of LIN as to how such shareholder should vote on the AT&T Proposal. We and Lehman will each receive a fee for acting jointly as the Independent Directors' Appraiser in connection with the appraisal process specified in the PMVG, payment of a significant portion of which is contingent upon the consummation of the acquisition of Public Shares by AT&T or an acquisition of LIN by a third party. In addition, LIN has agreed to indemnify us and Lehman for certain liabilities which may arise out of the rendering of this letter. We have performed various investment banking services for AT&T in the past (including the underwriting of debt and equity securities) and have received customary fees for such services. In the ordinary course of our business we actively trade the debt and equity securities of LIN and AT&T for our account and for the accounts of our customers and, accordingly, at any time hold a long or short position in such securities. This letter is solely for the use of LIN and the Independent Directors in connection with the PMVG, and may not be used for any other purpose or relied upon by any third party without the prior written approval of both us and Lehman, although this letter may be disclosed, but only in its entirety, in filings made by LIN with the Securities and Exchange Commission and in communications by LIN to its shareholders (or, if not disclosed in its entirety, then only with the prior written approval of both us and Lehman, which approval will not be unreasonably withheld). Very truly yours, BEAR, STEARNS & CO. INC. 4 February 15, 1995 Committee of Independent Directors LIN Broadcasting Corporation 5295 Carillon Point Kirkland, WA 98033 Attention: William G. Herbster Wilma H. Jordan Richard W. Kislik Ladies and Gentlemen: We understand that, pursuant to the Private Market Value Guarantee ("PMVG") dated December 11, 1989, as amended, between LIN Broadcasting Corporation ("LIN" or the "Company") and McCaw Cellular Communications, Inc. ("McCaw"), which has since been acquired by AT&T Corp. ("AT&T"), the LIN Independent Directors' Appraiser must determine the Private Market Value per Share of LIN. We also understand that Private Market Value per Share is defined in the PMVG as "the private market price per Share (including control premium) that an unrelated third party would pay if it were to acquire all outstanding Shares (including the shares held by the Offeror [McCaw] and its affiliates) in an arm's-length transaction, assuming that the Company was being sold in a manner designed to attract all possible participants (including the Regional Bell Operating Companies) and to maximize stockholder value, including if necessary through the sale or other disposition (including tax-free spin-offs, if possible) of businesses prohibited by legal restrictions to be owned by any particular buyer or class of buyers (e.g., the Regional Bell Operating Companies)." You have asked us, acting jointly with Bear, Stearns & Co. Inc. ("Bear Stearns"), as the Independent Directors' Appraiser, to determine the Private Market Value per Share of LIN as contemplated by the PMVG. Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 2 Pursuant to the PMVG, acting jointly with Bear Stearns, we determined our "initial view" of the Private Market Value per Share of LIN and thereafter consulted with Morgan Stanley & Co. Incorporated, the Offeror's Appraiser, with respect thereto. This letter sets forth our "final view" of the Private Market Value per Share of LIN, pursuant to the PMVG. A summary of our analyses used to determine the Private Market Value per share is included in the report dated February 14, 1995 delivered by us to the Committee of Independent Directors (the "Report"). In the course of our analyses for determining the Private Market Value per Share of LIN, we have: 1. reviewed the PMVG; 2. reviewed LIN's Annual Reports to Shareholders and Annual Reports on Form 10-K for the years ended December 1990 through 1993, and its Quarterly Reports on Form 10- Q for the periods ended March 31, 1994, June 30, 1994 and September 30, 1994; 3. reviewed certain operating and financial information, including projections, provided to us by the management of LIN relating to its business, operations and prospects; 4. met with certain members of LIN's and McCaw's senior managements to discuss LIN's business, operations, historical financial results, financial condition and prospects; 5. visited LIN's facilities in Kirkland, WA, Los Angeles, CA, New York, NY, and Dallas, TX; Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 3 6. reviewed various business, financial and legal information and documents relating to LIN and its subsidiaries and partnerships, including a review of the organizational structure, partnership agreements, tax bases and loan documentation, provided to us by LIN; 7. reviewed the historical prices and trading volume of the common stock of LIN; 8. performed discounted cash flow analyses, including discounted cash flow analyses based on the projections provided by the management of LIN; 9. reviewed publicly available financial data, stock market performance data and valuation parameters of certain other companies which we deemed relevant; 10. reviewed the terms of AT&T's acquisition of McCaw and the terms of certain other precedent acquisitions of cellular companies which we deemed relevant; 11. reviewed potential third-party interest in an acquisition of or an investment in LIN, including the possibility of tax-efficient transaction structures (although, at your direction, we did not contact any third parties to determine their potential interest); 12. reviewed historical operating and financial results of the wireless industry and Wall Street research analysts' and cellular industry experts' analyses of the prospects and projected trends of the wireless industry; Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 4 13. reviewed Wall Street research analysts' and cellular industry experts' analyses and estimates of the Private Market Value per Share of LIN; and 14. conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In addition to the foregoing, we considered LIN's unique position in the wireless industry, including its control or shared control of four of the country's ten largest cellular markets, its large number of subscribers and substantial revenues and its superior historical operating measures in comparison to other publicly traded cellular companies. In the course of our review, we have assumed and relied upon the accuracy and completeness of the financial and other information provided to us by LIN or otherwise used by us. With respect to LIN's projected financial results, we have assumed that the "base case" and "upside case" financial projections provided by LIN have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of LIN as to LIN's expected future financial performance. We also reviewed and considered the "sensitivity case" financial projections derived by us from the "base case" financial projections provided by LIN, and we reviewed and considered financial projections for LIN prepared and provided to us by McCaw. We have not assumed any responsibility for independent verification of the information or projections provided to us and we have further relied upon the assurances of the management of LIN that they are unaware of any facts that would make such information or projections inaccurate, incomplete or misleading. In arriving at our final view of Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 5 Private Market Value per Share, we have not performed or obtained any independent evaluation or appraisal of the assets or liabilities of LIN. Our view of the Private Market Value per Share is as of the date hereof but, with the consent of the Committee of Independent Directors of LIN, assumes a closing date for an acquisition of LIN of June 30, 1995. Our view is necessarily based on economic, market and other conditions, and information as they exist on, and can be evaluated as of, the date hereof. Based upon and subject to the foregoing, our final view pursuant to the PMVG is that the Private Market Value per Share of LIN as of the date hereof, but assuming a closing date for an acquisition of LIN of June 30, 1995, is $155. We and Bear Stearns will each receive a fee for acting jointly as the Independent Directors' Appraiser in connection with the appraisal process specified in the PMVG, payment of a significant portion of which is contingent upon the consummation of the acquisition of LIN's public minority shares by AT&T or an acquisition of LIN by a third party. In addition, LIN has agreed to indemnify us and Bear Stearns for certain liabilities which may arise out of the rendering of this letter. We have in the past performed various investment banking services for the Committee of Independent Directors, including the evaluation of the fairness of LIN's purchase of certain minority interest in LIN's New York cellular licensee, and the fairness of LIN's purchase of WTNH-TV New Haven- Hartford and concurrent spin-off of LIN Television Corporation, for which we have received customary fees. We also have performed various investment banking services for AT&T in the past (including the underwriting of debt and equity securities) and have received customary fees for such services. In the ordinary course of our business, we actively trade the debt and equity securities of LIN and AT&T for our own account and for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities. Committee of Independent Directors LIN Broadcasting Corporation February 15, 1995 Page 6 This letter and the Report are solely for the use of LIN and the Committee of Independent Directors of LIN in connection with the PMVG, and may not be used for any other purpose or relied upon by any third party (other than the Offeror's Appraiser and the Mutually Designated Appraiser pursuant to the PMVG), without the prior written approval of Lehman Brothers and Bear Stearns, although this letter and the Report may be disclosed in filings made by LIN with the Securities and Exchange Commission and in communications by LIN to its stockholders. Very truly yours, LEHMAN BROTHERS INC. Lehman Brothers Inc. 3 World Financial Center New York, NY 10285 April 28, 1995 Committee of Independent Directors LIN Broadcasting Corporation 5295 Carillon Point Kirkland, WA 98033 Attention: William G. Herbster Wilma H. Jordan Richard W. Kislik Ladies and Gentlemen: We understand that, pursuant to the Private Market Value Guarantee (the "PMVG"), dated December 11, 1989, between LIN Broadcasting Corporation ("LIN") and McCaw Cellular Communications, Inc. ("McCaw"), which has since been acquired by AT&T Corp. ("AT&T"), AT&T, the beneficial owner of approximately 52% of the outstanding shares of LIN, has proposed (the "AT&T Proposal") to purchase all Public Shares (as defined in the PMVG) in accordance with the process set forth in the PMVG. Acting jointly with Bear, Stearns & Co. Inc. ("Bear Stearns") as the Independent Directors' Appraiser (as defined in the PMVG), pursuant to the PMVG, we have previously determined and delivered to you, in our separate letters of February 15, 1995 (the "February 15 Letters"), our "final view" of "private market value per Share" (as defined in the PMVG). You have requested our view, acting jointly with Bear Stearns, as to whether there is a substantial likelihood that the price at which Public Shares would initially trade, on a fully distributed basis, would be less than $127.50 per share, assuming the AT&T Proposal were not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders (as defined in the PMVG) and assuming no change in market, economic, financial and other conditions (including, without limitation, conditions affecting the cellular industry generally or LIN specifically) as they exist on and can be evaluated as of the date hereof. Based on (i) the factors set forth in the February 15 Letters, which factors we considered as of such date in connection with our arriving at our view of "private market value per Share," (ii) certain additional factors we have considered and analyses we have performed as of the date hereof, including a review of (a) the Form 10-K of LIN for the year ended December 31, 1994, and other publicly available financial data, stock market performance data, ownership profiles and valuation parameters of LIN that have been made available since the date of the February 15 Letters and that we deemed relevant, (b) publicly available financial data, stock market performance data, ownership profiles and valuation parameters of certain other companies that have been made available since the date of the February 15 Letters and that we deemed relevant, (c) Wall Street research analysts' views of the public market trading value of LIN's stock in the event the AT&T Proposal is not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders and (d) such other analyses that we deemed relevant and (iii) the ongoing protections afforded to the holders of Public Shares under the PMVG in the event that the AT&T Proposal is not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders, and subject to the succeeding paragraphs of this letter and the general qualifications and assumptions set forth in the February 15 Letters, it is our view that, assuming (x) the vote of the holders of Public Shares regarding the AT&T Proposal were held and the AT&T Proposal 2 failed to be approved by a Majority Vote of the Public Stockholders, (y) Public Shares held by arbitrageurs and others who are holding such shares in anticipation of consummation of the AT&T Proposal or an alternative transaction were fully redistributed and (z) there were no change in market, economic, financial and other conditions (including, without limitation, conditions affecting the cellular industry generally or LIN specifically) as they exist on and can be evaluated as of the date hereof, there is a substantial likelihood that the price at which Public Shares would initially trade would be less than $127.50 per share. The estimation of public market trading prices of securities is subject to uncertainties and contingencies, all of which are difficult to predict and beyond the control of the firm making such estimates. The market prices of securities will fluctuate with changes in market conditions, the conditions and prospects of the industry and the particular company involved, and other factors which generally influence the prices of securities. Our view is necessarily based on market, economic, financial and other conditions as they exist on and can be evaluated as of the date hereof. In addition, we have assumed, with your permission, that AT&T has no intention to acquire Public Shares in the event that the AT&T Proposal is not consummated. There can be no assurance that our view expressed herein will conform with actual public market trading prices of LIN's shares. Our view stated herein does not constitute an opinion as to the fairness of the AT&T Proposal in any respect, and does not constitute a recommendation to any shareholder of LIN as to how such shareholder should vote on the AT&T Proposal. 3 We and Bear Stearns will each receive a fee for acting jointly as the Independent Directors' Appraiser in connection with the appraisal process specified in the PMVG, payment of a significant portion of which is contingent upon the consummation of the acquisition of Public Shares by AT&T or an acquisition of LIN by a third party. In addition, LIN has agreed to indemnify us and Bear Stearns for certain liabilities which may arise out of the rendering of this letter. We have in the past performed various investment banking services for the Committee of Independent Directors, for which we have received customary fees. We have performed various investment banking services for AT&T in the past (including the underwriting of debt and equity securities) and have received customary fees for such services. In the ordinary course of our business we actively trade the debt and equity securities of LIN and AT&T for our account and for the accounts of our customers and, accordingly, at any time hold a long or short position in such securities. This letter is solely for the use of LIN and the Independent Directors in connection with the PMVG, and may not be used for any other purpose or relied upon by any third party without the prior written approval of both us and Bear Stearns, although this letter may be disclosed, but only in its entirety, in filings made by LIN with the Securities and Exchange Commission and in communications by LIN to its shareholders (or, if not disclosed in its entirety, then only with the prior written approval of both us and Bear Stearns, which approval will not be unreasonably withheld). Very truly yours, LEHMAN BROTHERS INC. 4 {keywords |LIN Broadcasting Corporation} Presentation to the Committee of Independent Directors of LIN Broadcasting Corporation Executive Summary February 14, 1995 {keywords |LIN Broadcasting Corporation} Table of Contents Tab I Executive Summary II Valuation Analyses A Valuation Matrix B Discounted Cash Flow Analyses C Other Valuation Benchmarks III Pro Forma Business Combination Between AT&T and LIN IV Potential Third Party Interest {keywords |LIN Broadcasting Corporation} Section I Executive Summary {keywords |LIN Broadcasting Corporation} Introduction This presentation represents the joint work product of Bear Stearns and Lehman Brothers. Lehman Brothers and Bear Stearns have jointly determined a range of private market values per share of LIN Broadcasting Corporation ("LIN" or the "Company") from which they determined their "initial view" and "final view" of private market value per share as contemplated by the Private Market Value Guarantee ("PMVG") dated December 11, 1989, as amended, between LIN and McCaw Cellular Communications, Inc. ("McCaw"), which has since been acquired by AT&T Corp. ("AT&T"). "Private Market Value" is defined in the PMVG as: "the private market value per Share (including control premium) that an unrelated third party would pay if it were to acquire all outstanding Shares (including the shares held by [AT&T] and its affiliates) in an arm's-length transaction, assuming that the Company was being sold in a manner designed to attract all possible participants (including the Regional Bell Operating Companies) and to maximize stockholder value, including if necessary through the sale or other disposition (including tax-free spin-offs, if possible) of businesses prohibited by legal restrictions to be owned by any particular buyer or class of buyers (e.g., the Regional Bell Operating Companies)." Page 1 {keywords |LIN Broadcasting Corporation} Introduction Bear Stearns and Lehman Brothers determined their "initial view", "final view" and a valuation range of LIN assuming a closing date of June 30, 1995. A price adjustment mechanism will need to be established to address the possibility that a transaction does not close by June 30, 1995. Page 2 {keywords |LIN Broadcasting Corporation} PMVG Timeline LIN Broadcasting Corporation Appraisal and Sale Process Prescribed by the PMVG T=1 (January 1, 1995) Initiation Date - The appraisal process begins. Bear Stearns and Lehman Brothers selected as Independent Directors' Appraiser. Morgan Stanley selected by AT&T as its Appraiser (collectively the "Appraisers") T+30 (January 31, 1995) Appraisers determine initial valuations Consultation between Appraisers T+45 (February 15, 1995) Appraisers determine final valuations Is the Higher Appraised Amount greater than 110% of the Lower Appraised Amount? No: Price=average of two valuations Yes: Appraisers select Mutually Designated Appraiser T+65 (March 7, 1995) Mutually Designated Appraiser determines Mutually Appraised Amount Price will be (x) the Mutually Appraised Amount if such amount is greater than 1/3 and less than 2/3 of the way between the Lower Appraised Amount and the Higher Appraised Amount or (y) the average of the Mutually Appraised Amount and the Appraised Amount which is closest to the Mutually Appraised Amount, though no lower than the Lower Appraised Amount a higher than the Higher Appraised Amount _______________________________________________________________________ [Once Price is determined,] AT&T has 45 days to decide whether or not to proceed with the acquisition. AT&T Proceeds with the Acquisition: _______________________________________________________________________ Shareholder approval obtained? No: PMVG Process Ends Yes: T+365 (January 1, 1996) Is acquisition completed. Is acquisition completed within 12 months (or 20 months due to a regulation delay) following Initiation Date? Yes: Sale to AT&T No: Independent Directors have right to sell 100% of the Company (subject to shareholder approval) AT&T does not proceed with the Acquisition: _______________________________________________________________________ Independent Directors have right to sell 100% of the Company (subject to shareholder approval) Page 3 {keywords |LIN Broadcasting Corporation} PMVG Valuation Range Valuation Range of LIN Used to Determine Initial and Final Views(1) Private Market Valuation Range Low Final View Initial View High ________________________________________________________________ Per Share $140 $155 $162 $170 Equity Value ($MM)(2) $7,463 $8,262 $8,635 $9,062 Equity Value - Public Stake(3) 3,684 4,079 4,263 4,473 Equity Value - AT&T Stake(4) 3,779 4,183 4,372 4,588 Enterprise Value ($MM)(2) $8,879 $9,679 $10,052 $10,478 __________ (1) For purposes of "initial view" and "final view" pursuant to the PMVG, Lehman Brothers and Bear Stearns have assumed a closing date of June 30, 1995. (2) Based on 51,632,000 shares and 1,671,862 stock options outstanding as of December 31, 1994. Assumes options are exercised at an average exercise price of $85.56. Includes net debt estimated at $1,560 million as of June 30, 1995. (3) Represents fully diluted equity value (not reduced by stock option proceeds) less AT&T's stake of 26,989,500 shares as of the LIN proxy statement dated June 2, 1994. (4) Represents AT&T's stake of 26,989,500 shares as of the LIN proxy statement dated June 2, 1994. Page 4 {keywords |LIN Broadcasting Corporation} Additional Valuation Considerations Since Initial View Since our previous presentation to the Committee of Independent Directors, dated January 19, 1995, we have considered the following additional factors, among others, in determining our "final view" of the private market value of LIN: We reviewed and considered the alternative projections for LIN prepared by AT&T / McCaw furnished to us on January 18, 1995 (and additional backup to such projections furnished to us on February 9, 1995), LIN management's comments on such projections dated January 23, 1995 and thereafter, and our due diligence inquiries of AT&T / McCaw regarding such projections on January 25, 1995. We considered the potential appropriateness of using discount rates and terminal value multiples specific to the wireless data business in performing discounted cash flow analysis on that segment. We revisited the potential impact of the shared control aspects of LIN's Los Angeles and Houston markets on our overall valuation of the Company. We conducted discussions with AT&T's appraiser, Morgan Stanley, in order to gain an understanding of AT&T's / Morgan Stanley's perspectives of LIN's competitive position and business prospects, historical and projected financial performance, financial condition and attendant private market valuation. We reviewed Wall Street research estimates of LIN's potential private market value published subsequent to January 19, 1995. We reviewed the trading prices for LIN's stock since January 19, 1995 through February 13, 1995. Page 5 {keywords |LIN Broadcasting Corporation} Summary Valuation Matrix Summary Valuation Matrix ($ in millions, except per share data) Private Market Valuation Range of LIN as Contemplated by the PMVG(10) Final Initial View View $140 $155 $162 $170 ________________________________________________________________ Value of Outstanding Common Shares (1) $7,228 $8,003 $8,364 $8,777 Add: Exercise of Stock Options (2) 234 259 271 284 ________________________________________________________________ Equity Value $7,463 $8,262 $8,635 $9,062 Equity Value - Public Stake (3) 3,684 4,079 4,263 4,473 Equity Value - AT&T Stake (4) 3,779 4,183 4,372 4,588 Add: Net Debt @ 6/30/95 (5) 1,560 1,560 1,560 1,560 Less: Stock Option Proceeds (2) (143) (143) (143) (143) Gross Enterprise Value $8,879 $9,679 $10,052 $10,478 Less: Other Operations (6) (112) (112) (112) (112) Cellular Enterprise Value $8,767 $9,566 $9,939 $10,366 Cellular Enterprise Value / Proportionate Cellular EBITDA: Actual 1994 (7) $389.4 22.5x 24.6x 25.5x 26.6x Estimated 1995- Management Base Case (8) 534.6 16.4 17.9 18.6 19.4 - Wall Street Forecasts(9) 510.0 17.2 18.8 19.5 20.3 Estimated 1996- Management Base Case (8) 674.4 13.0 13.8 14.2 14.7 Cellular Enterprise Value / Proportionate POPs @ 12/31/94 25.384 $345 $377 $392 $408 _________________ (1) Based on 51,632,000 shares outstanding as of December 31, 1994 per LIN's management. (2) In-the-money stock options based on 1,671,862 stock options outstanding as of December 31, 1994 with an assumed average exercise price of $85.56. (3) Represents fully diluted equity value (not reduced by stock option proceeds) less AT&T stake of 26,989,500 shares as of the LIN proxy statement dated June 2, 1994. (4) Represents AT&T's stake of 26,989,500 shares as of the LIN proxy statement dated June 2, 1994. (5) Since valuation assumes a closing date of June 30, 1995, Bear Stearns and Lehman Brothers have projected LIN's debt and cash accounts based on data provided by LIN's management. (6) The adjustment includes: (i) $88.4 million for WOTV and WOOD-TV (which remained with LIN when it spun off LIN-TV) valued at 9.5x estimated 1995 EBITDA and (ii) $24.0 million for LIN's shares in American Mobile Satellite Corp. (SKYC) (1,655,670 shares at a publicly traded market value of $14.50 per share). (7) Actual proportionate EBITDA which excludes Philadelphia. (8) LIN management's Base Case projections. (9) Based on mean of recent Wall Street research analysts' estimates of LIN's operating cash flow. (10) Valuation range used to determine "initial view" and "final view". Page 6 {keywords |LIN Broadcasting Corporation} Valuation Methodologies and Considerations Valuation Methodologies Discount Precedent Comparable Cash Flow M&A Public Analyses Transactions Companies Valuation LIN's Historical LIN's Wireless Wall Street Equity Financial and Business Communications Research Estimates Operating Performance Strategy & Market Trends and Commentary and Future Prospects Position Potential Third Ownership and Most Attractive Party Interests Potential Control Independent and Tax Efficient Characteristics of Cellular Company Financial Impacts Sale Transactions LIN's Markets Page 7 {keywords |LIN Broadcasting Corporation} LIN's Unique Position Control or shared control of four of the country's ten largest cellular markets - New York (#1) - Los Angeles (#2) - Dallas (#6) - Houston (#8) - All of these properties have great strategic value to potential purchasers and would, collectively, serve as the cornerstone of a national wireless strategy - Demographics and business mix of LIN's markets will enable LIN to maximize revenue and cash flow during the next wave of cellular growth - Characterized as McCaw's "crown jewels" by Alex Mandl, CEO of AT&T's Communications Services Group, in his sworn affidavit of May 26,1994 1.1 million proportionate subscribers Almost $1 billion in revenues Superior historical operating results: Highest EBITDA/POP ratio and revenue per subscriber per month of any publicly traded cellular company Operations are well positioned to capitalize on new revenue sources such as wireless data and other advanced services. Page 8 {keywords |LIN Broadcasting Corporation} Summary of Valuation Analyses Summary of Valuation Analyses Per Share Range Valuation Analysis Low High DCF Analyses(1) Base Case(2) $141 $194 Upside Case(2) $172 $235 Sensitivity Case(2) $104 $144 Precedent M&A Transactions(3) $140 $180 Public Market Reference Valuation LIN's Stock Price(4) $139 LIN's Valuation Based on Peer Group(5) 116 ____________ (1) Lehman Brothers and Bear Stearns reviewed three cases: (i) LIN management's Base Case, (ii) LIN management's Upside Case and (iii) Bear Stearns / Lehman Brothers Sensitivity Case. (2) Valuation range assumes a discount rate of 11% {symbol 45 \f "Symbol" \s 8|} 13% and a 2004 EBITDA exit multiple of 10.5x {symbol 45 \f "Symbol" \s 8|} 12.5x. (3) Based on a detailed analysis of AT&T's acquisition of McCaw. (4) Based on LIN's closing price of $138.75 on February 10, 1995. (5) Based on Bear Stearns and Lehman Brothers estimate of public market 1995E EBITDA multiple of 14.0x. Page 9 {keywords |LIN Broadcasting Corporation} LIN Share Price Profile - Past Year LIN Daily Stock Price Performance(1) January 1, 1994 to February 10, 1995 [Graph of LIN daily stock price for January 1, 1994 to February 10, 1995 shows a stock price per share of LIN Broadcasting Corporation beginning at $97 and rising to $139, versus a valuation range determined by Bear Stearns and Lehman Brothers $140 to $170.] Valuation Range Premium Compared to: $140 $155 $162 $170 LIN's Closing Price on 2/10/95 $138.75 0.9% 11.7% 16.8% 22.5% ______________ (1) Prices prior to December 29, 1994 have been adjusted downward by $12.00 per share to reflect spin-off of LIN-TV. Page 10 {keywords |LIN Broadcasting Corporation} LIN Share Price Profile - Past Six Years(1) LIN Stock Price / Volume Performance Monthly: June 30, 1988 to February 10, 1995 [Graph of LIN monthly stock price and volume performance for June 30, 1988 to February 10, 1995 shows a stock price of approximately (i) $50 on June 30, 1988, (ii) $60 immediately prior to McCaw's bid of $120(2) per share of LIN, (iii) $108 on the day McCaw bid $154(2) per share for control of LIN, (iv) $70 after 46.3 million LIN shares were tendered, (v) $66 when AT&T announced its bid for 33% of McCaw, (vi) $115 when AT&T and the Department of Justice signed antitrust consent decree, (vii) $128 when Nextel/MCI deal was terminated, and (viii) $135 when LIN-TV was spun off. The volume performance of LIN shares is heavy (up to 18,000,000) during the period in which McCaw was bidding for the shares of LIN dropping off after 46.3 million LIN shares were tendered to McCaw, with a slight rise in volume when AT&T announced its bid for 33% of McCaw (up to approximately 6,000,000) and when LIN-TV is spun off (up to approximately 5,800,000)] ____________ (1) Source: IDD Information Services. Prices prior to December 29, 1994 have been adjusted downward by $12.00 per share to reflect spin-off of LIN-TV. (2) Not adjusted for LIN-TV spin-off. Page 11 {keywords |LIN Broadcasting Corporation} Summary of Recent Wall Street Research Estimates Summary of Wall Street Research Commentary on LIN Target Target PMV Less: Cellular PMV Range Net of Including PMV of PMV Net LIN-TV Firm Date LIN TV LIN TV of LIN TV Low High Goldman Sachs 01/24/95 {symbol 190 \f "Symbol" \s 9|} {symbol 190 \f "Symbol" \s 9|} $155.00 $155.00 $155.00 Salomon 01/24/95 {symbol 190 \f "Symbol" \s 9|} {symbol 190 \f "Symbol" \s 9|} 145.00 145.00 {symbol 190 \f "Symbol" \s 9|} PaineWebber 01/24/95 {symbol 190 \f "Symbol" \s 9|} {symbol 190 \f "Symbol" \s 9|} 140.00 140.00 152.00 Smith Barney 01/24/95 {symbol 190 \f "Symbol" \s 9|} {symbol 190 \f "Symbol" \s 9|} 142.00 142.00 142.00 Paul Kagan 01/20/95 {symbol 190 \f "Symbol" \s 9|} {symbol 190 \f "Symbol" \s 9|} 150.00 145.00 155.00 Wheat First 01/18/95 {symbol 190 \f "Symbol" \s 9|} {symbol 190 \f "Symbol" \s 9|} 159.00(1)158.00 160.00 CS First Boston 01/12/95 {symbol 190 \f "Symbol" \s 9|} {symbol 190 \f "Symbol" \s 9|} 150.00 137.00 158.00 Merrill Lynch 12/21/94 $150.00 (12.00)(2) 138.00(2) 130.00 146.00 DLJ 12/15/94 157.50 (15.00) 142.50 140.00 145.00 Gerard Klauer 12/02/94 170.00 (14.00) 156.00 156.00 156.00 High $159.00 $158.00 $160.00 Mean 147.75 144.80 152.11 Median 147.50 143.50 155.00 Low 138.00 130.00 142.00 ____________ (1) Midpoint of stated range. (2) In December 1994, LIN completed a spin-off of its television operations. Where not specifically commented on by the research analyst, Bear Stearns and Lehman Brothers have estimated the private market value of LIN-TV at $12.00 per LIN share. Page 12 {keywords |LIN Broadcasting Corporation} Section II Valuation Analyses {keywords |LIN Broadcasting Corporation} Section II-A Valuation Matrix {keywords |LIN Broadcasting Corporation} Valuation Matrix Closing Price 2/10/95 $138.75 Premium (Discount) to: Closing Price on 2/10/95 $138.750(1) 0.0% LTM High Price on 2/6/95 139.375(1) -0.4% LTM Low Price on 4/6/94 94.313(1) 47.1% Consideration Outstanding Common Shares(2) $7,164 Add: Exercise of Stock Options(3) $232 Equity Value $7,396 Public Stake-Equity Value(4) $3,651 AT&T Stake-Equity Value(5) $3,745 Add: Project Net Debt @ 6/30/95(6) $1,560 Less: Stock Option Proceeds(3) ($143) Gross Enterprise Value $8,812 Less: Other Operations(7) ($112) Cellular Enterprise Value $8,700 Valuation Parameters Cellular Enterprise Value/ Proportionate Cellular EBITDA: Actual 1994(8) $389.4 22.3x Latest Quarter Annualized 386.3 22.5 Estimated 1995-Management Base Case(9) 535.2 16.3 Estimated 1995-Wall Street Forecasts(10) 510.0 17.1 Estimated 1996-Management Base Case(9) 674.4 12.9 Cellular Enterprise Value/ Proportionate POPs @ 12/31/94 25.384 $343 Hypothetical Private Market Values $140.00 $150.00 $155.00 $162.00 $170.00 0.9% 8.1% 11.7% 16.8% 22.5% 0.4% 7.6% 11.2% 16.2% 22.0% 48.4% 59.0% 64.3% 71.8% 80.3% $7,228 $7,745 $8,003 $8,364 $8,777 $234 $251 $259 $271 $284 $7,463 $7,996 $8,262 $8,635 $9,062 $3,684 $3,947 $4,079 $4,263 $4,473 $3,779 $4,048 $4,183 $4,372 $4,588 $1,560 $1,560 $1,560 $1,560 $1,560 ($143) ($143) ($143) ($143) ($143) $8,879 $9,412 $9,679 $10,052 $10,478 ($112) ($112) ($112) ($112) ($112) $8,767 $9,300 $9,566 $9,939 $10,366 22.5x 23.9x 24.6x 25.5x 26.6x 22.7 24.1 24.8 25.7 26.8 16.4 17.4 17.9 18.6 19.4 17.2 18.2 18.8 19.5 20.3 13.0 13.8 14.2 14.7 15.4 $345 $366 $377 $392 $408 (1) Stock price and historical high and low adjusted to reflect spin-off of LIN-TV at $12.00 per share (2) Based on 51,632,000 shares outstanding as of December 31, 1994. (3) Stock options based on 1,671,862 stock options outstanding as of December 31, 1994 at an assumed average exercise price of $85.56. (4) Represents fully diluted equity value (not reduced by stock option proceeds) less AT&T stake of 26,989,500 shares as of the LIN proxy statement dated June 2, 1994. (5) Represents AT&T stake of 26,989,500 shares as of the LIN proxy statement dated June 2, 1994. (6) Since valuation is as of June 30, 1995, Lehman Brothers and Bear Stearns have projected LIN's debt and cash accounts based on data provided by LIN's management. (7) The adjustment includes: (i) $88,378,500 for WOTV and WOOD-TV valued at 9.5x estimated 1995 EBITDA and (ii) $24.0 million for LIN's shares in American Mobile Satellite Corp. (SKYC)(1,655,670 shares at a publicly traded market value of $14.50 per share). (8) Actual proportionate EBITDA which excludes Philadelphia. (9) Management's Base Case projections dated January 6, 1995. (10) Based on mean of recent Wall Street research analysts' estimates of LIN's operating cash flow. Page 13 {keywords |LIN Broadcasting Corporation} Section II-B Discounted Cash Flow Analyses {keywords |LIN Broadcasting Corporation} Discounted Cash Flow Analyses We performed discounted cash flow (DCF) analyses based on projections provided by LIN's senior management under three operating scenarios: - Base Case: This case assumes that LIN's revenue, subscriber and cash flow growth is highest in 1995 and declines each year thereafter, with more rapid declines in the first several years as the wireless communications industry matures and becomes more competitive. - Upside Case: This case is similar to the Base Case except that LIN's management has projected that (i) penetration is higher because wireless telephones replace a portion of landline telephones and new PCS and ESMR entrants gain less market share than anticipated in the Base Case; (ii) average revenue per subscriber per month ("ARPU") decreases at a slower rate than in the Base Case due to a higher use of advanced services such as wireless data transfer, two-way alphanumeric messaging, voice mail, call waiting, call forwarding, caller ID and other services; and (iii) LIN provides more long distance services. - Sensitivity Case: Bear Stearns and Lehman Brothers jointly derived this case from the Base Case projections provided by LIN's management. This case reflects wireless industry growth at a slower rate than the Base Case such that: (i) the wireless industry and LIN achieve a lower penetration; (ii) ARPU is reduced due to price reductions and lower use of wireless data transfer; and (iii) margins are "squeezed" due to competition and the carriers' pursuit of more low usage customers. Page 14 {keywords |LIN Broadcasting Corporation} Discounted Cash Flow Analyses Because the cellular sector is rapidly growing and evolving, Lehman Brothers and Bear Stearns believe that DCF analysis is an important valuation methodology for determining the private market value of LIN. In our DCF analyses Lehman Brothers and Bear Stearns focused on different areas of the range of discount rates and terminal value multiples depending on the assumptions, risks and forecast growth of the cellular business inherent in the projections. In performing our DCF analyses, we have considered several specific factors which may potentially impact valuation: - Potential impact of using discount rates and terminal value multiples specific to the wireless data business segment. - Potential effect of the shared control aspects of LIN's Los Angeles and Houston markets. Page 15 {keywords |LIN Broadcasting Corporation} Discounted Cash Flow Analyses Base Case Equity Value per Share Discount Rate(1) 11% 12% 13% EBITDA 10.5x $168 $154 $141 Multiple 11.5x 181 166 152 12.5x 194 178 163 1995E Cash Flow Multiple Discount Rate(1) 11% 12% 13% EBITDA 10.5x 19.2x 17.8x 16.5x Multiple 11.5x 20.5x 19.0x 17.6x 12.5x 21.8x 20.2x 18.7x Implied Perpetual Growth Rate (2) Discount Rate(1) 11% 12% 13% EBITDA 10.5x 5.3% 6.3% 7.3% Multiple 11.5x 5.8% 6.8% 7.8% 12.5x 6.2% 7.2% 8.2% Terminal Value as % of Present Value Discount Rate(1) 11% 12% 13% EBITDA 10.5x 70.1% 69.5% 68.8% Multiple 11.5x 72.0% 71.4% 70.7% 12.5x 73.7% 73.0% 72.4% Upside Case Equity Value per Share Discount Rate(1) 11% 12% 13% EBITDA 10.5x $204 $188 $172 Multiple 11.5x 220 202 185 12.5x 236 216 199 1995E Cash Flow Multiple Discount Rate(1) 11% 12% 13% EBITDA 10.5x 22.7x 21.0x 19.5x Multiple 11.5x 24.2x 22.4x 20.8x 12.5x 25.8x 23.8x 22.1x Implied Perpetual Growth Rate (2) Discount Rate(1) 11% 12% 13% EBITDA 10.5x 5.5% 6.5% 7.5% Multiple 11.5x 6.0% 7.0% 8.0% 12.5x 6.4% 7.4% 8.4% Terminal Value as % of Present Value Discount Rate(1) 11% 12% 13% EBITDA 10.5x 71.7% 71.1% 70.5% Multiple 11.5x 73.5% 72.9% 72.3% 12.5x 75.1% 74.6% 74.0% Sensitivity Case Equity Value per Share Discount Rate(1) 11% 12% 13% EBITDA 10.5x $125 $114 $104 Multiple 11.5x 134 123 113 12.5x 144 132 121 1995E Cash Flow Multiple Discount Rate(1) 11% 12% 13% EBITDA 10.5x 17.3x 16.1x 14.9x Multiple 11.5x 18.4x 17.1x 15.9x 12.5x 19.5x 18.1x 16.8x Implied Perpetual Growth Rate (2) Discount Rate(1) 11% 12% 13% EBITDA 10.5x 5.7% 6.7% 7.7% Multiple 11.5x 6.1% 7.1% 8.1% 12.5x 6.5% 7.5% 8.5% Terminal Value as % of Present Value Discount Rate(1) 11% 12% 13% EBITDA 10.5x 67.9% 67.1% 66.4% Multiple 11.5x 69.8% 69.1% 68.4% 12.5x 71.6% 70.9% 70.1% ____________ (1) Weighted average cost of capital reflects (i) a risk free rate of 7.57% which represents the 10-year U.S. Treasury rate; (ii) a market risk premium of 7.22%; (iii) an estimated predicted Beta of 1.13 for LIN and 1.04 based on an analysis of predicted Betas for comparable companies (as provided by BARRA); and (iv) total debt / total capitalization of 35% with long-term and short-term assumed to be split equally. (2) Represents required perpetual compounded annual growth in terminal year free cash flow necessary to justify terminal value calculated using indicated multiple of EBITDA. Page 16 {keywords |LIN Broadcasting Corporation} Summary of Projections Comparison of Projections 10 Year Compounded Annual Growth 1994 2000 2004 Rate (CAGR) Subscribers (000) Sensitivity Case 1,079 3,043 3,867 13.6% Base Case 1,079 3,666 4,801 16.1% Upside Case 1,079 3,808 5,155 16.9% Revenue ($MM) Sensitivity Case $912 $2,089 $2,771 11.8% Base Case 912 2,541 3,666 14.9% Upside Case 912 2,793 4,451 17.2% EBITDA ($MM) Sensitivity Case $389 $1,004 $1,389 13.6% Base Case 389 1,216 1,849 16.9% Upside Case 389 1,411 2,246 19.2% Penetration Sensitivity Case 4.3% 11.2% 13.6% -- Base Case 4.3 13.4 16.9 -- Upside Case 4.3 14.0 18.2 -- ARPU(1) Sensitivity Case $82.57 $59.43 $61.20 -- Base Case 82.57 60.95 64.93 -- Upside Case 82.57 64.55 73.93 -- ______________ (1) Average revenue per subscriber per month which is in nominal terms and includes wireless data. Page 17 {keywords |LIN Broadcasting Corporation} Summary of Projections Cellular Penetration 1992 1993 1994 1995 1996 1997 1998 Historical 2.2% 3.0% 4.2% Base Case 6.0% 7.9% 9.3% 10.8% Upside Case 6.0% 7.8% 9.5% 11.0% Sensitivity Case 6.2% 7.8% 8.8% 9.7% 1999 2000 2001 2002 2003 2004 Historical Base Case 12.0% 13.4% 14.5% 15.4% 16.2% 16.8% Upside Case 12.3% 13.8% 15.0% 16.0% 17.1% 18.0% Sensitivity Case 10.2% 11.2% 11.8% 12.2% 13.0% 13.7% Revenue/Average Subscriber/Month(1)(2) 1992 1993 1994 1995 1996 1997 1998 Historical $90 $84 $83 Base Case $74 $68 $65 $63 Upside Case $75 $69 $66 $65 Sensitivity Case $74 $68 $64 $61 1999 2000 2001 2002 2003 2004 Historical Base Case $61 $61 $61 $62 $63 $65 Upside Case $64 $65 $67 $69 $71 $73 Sensitivity Case $59.5 $59 $59 $59.5 $60 $60 (1) Projected Revenue/Average Subscriber/Month is in nominal terms and, thus, is not adjusted for inflation. (2) Includes wireless data and feature revenues. Page 18 {keywords |LIN Broadcasting Corporation} Summary of Projections Cellular Subscribers 1992 1993 1994 1995 1996 1997 1998 Historical 500 750 1,050 Base Case 1,600 2,000 2,500 2,900 Upside Case 1,500 2,000 2,550 2,950 Sensitivity Case 1,600 2,000 2,400 2,500 1999 2000 2001 2002 2003 2004 Historical Base Case 3,300 3,700 4,000 4,300 4,600 4,700 Upside Case 3,400 3,800 4,100 4,500 4,800 5,100 Sensitivity Case 2,800 3,000 3,200 3,500 3,700 3,900 Cellular Subscriber Growth 1992 1993 1994 1995 1996 1997 1998 Historical 32% 30% 45% Base Case 45% 30.5% 20% 16% Upside Case 44% 31% 25% 16% Sensitivity Case 51% 24% 14% 10% 1999 2000 2001 2002 2003 2004 Historical Base Case 14% 11% 10% 8% 6% 4% Upside Case 13% 11% 10% 8.5% 7% 5.5% Sensitivity Case 9% 8% 7% 7% 6% 5% Page 19 {keywords |LIN Broadcasting Corporation} Summary of Projections Cellular Revenues 1992 1993 1994 1995 1996 1997 1998 Historical $500 $650 $950 Base Case $1,200 $1,475 $1,750 $2,000 Upside Case $1,200 $1,475 $1,800 $2,150 Sensitivity Case $1,200 $1,475 $1,650 $1,800 1999 2000 2001 2002 2003 2004 Historical Base Case $2,250 $2,500 $2,800 $3,100 $3,400 $3,600 Upside Case $2,400 $2,750 $3,150 $3,600 $4,000 $4,400 Sensitivity Case $1,900 $2,000 $2,250 $2,400 $2,500 $2,750 Cellular Revenue Growth 1992 1993 1994 1995 1996 1997 1998 Historical 26% 23% 38% Base Case 28% 24.7% 18% 15% Upside Case 28% 25% 20.5% 19% Sensitivity Case 32% 23.5% 11% 7.5% 1999 2000 2001 2002 2003 2004 Historical Base Case 12% 12% 11% 10.5% 9% 7.5% Upside Case 13% 13.5% 14% 13.5% 12% 10% Sensitivity Case 7.5% 7.5% 7.5% 7.5% 7.5% 7% Page 20 {keywords |LIN Broadcasting Corporation} Summary of Projections Cellular EBITDA 1992 1993 1994 1995 1996 1997 1998 Historical $250 $300 $400 Base Case $500 $700 $800 $900 Upside Case $500 $750 $850 $1,050 Sensitivity Case $450 $650 $750 $800 1999 2000 2001 2002 2003 2004 Historical Base Case $1,100 $1,250 $1,350 $1,550 $1,700 $1,850 Upside Case $1,250 $1,400 $1,600 $1,800 $2,000 $2,250 Sensitivity Case $900 $1,000 $1,100 $1,200 $1,250 $1,350 Cellular EBITDA Margin 1992 1993 1994 1995 1996 1997 1998 Historical 50% 48% 43% Base Case 45% 45.3% 45.5% 45.7% Upside Case 45% 47% 47.5% 49% Sensitivity Case 37.5% 42.5% 44.5% 45% 1999 2000 2001 2002 2003 2004 Historical Base Case 46.5% 47.5% 48% 49% 50% 50% Upside Case 50.1% 50.2% 50.1% 50% 50.1% 50% Sensitivity Case 47% 48% 48.5% 49% 49.7% 49.8% Page 21 {keywords |LIN Broadcasting Corporation} Due Diligence Review With McCaw and LIN Management Future Growth of Cellular This is an incredible business - New York General Manager Tim Donahue I don't see this business slowing down at all - Donahue This (the cellular industry) will blow wide open in two to three years - Donahue We have typically underestimated the growth of this business - Donahue LA is a diamond in the cellular world. It is an ideal cellular market - Gene Welsh Los Angeles CFO Penetration and Subscriber Growth ESMR will only capture 3% - 4% of total wireless market - Former McCaw President Jim Barksdale A PCS competitor may gain up to 10% market share by 2000 - Barksdale 10% market share points for PCS in 2000 would be "upside" - Donahue Wireless penetration in 2004 will be 40% with cellular capturing 35% - Houston general manager Dan Kovalevich 30% annual subscriber growth at "minimum" over next five years; and I can "go fishing" and still get 2 million subscribers in NY by 2000 - Donahue Penetration in LA will go from lagging the country average to outpacing it - Welsh Margins and Operating Expenses Margins will remain in the mid-40% to 50% range over time because of operating efficiencies - Donahue 50% margins will return - Welsh Operating expenses per MOU will decline from $0.15 to $0.10 over time - Barksdale By 1997, operating costs/sub will decline from $22 to $16 and operating costs / MOU will decline to $0.10 - McCaw President Steve Hooper (January '94 Presentation) Cost per gross add is the single most important variable - Barksdale We're not as efficient as we could be - Barksdale Marketing costs per gross add will decrease over time - Marketing [Vice President] Dick Bryan We control distribution in NY - Donahue ARPU and Price Competition $40 - $60 ARPU in real terms in 2004 - Donahue McCaw/LIN will be price competitive and retain market share despite competition - Barksdale PCS will never recoup investment if they "low-ball" on price - Donahue Selling minutes is our product - Barksdale We have 350 cell sites in New York. PCS needs more than cellular and NY is a tough market in which to secure cell sites - Donahue PCS operators are underestimating what it's going to take to get into NY - Donahue Other Wireless Data The data business will be huge - Barksdale 50% - 60% market share for LIN. Wireless data at 25% of cellular revenues is reasonable - Wireless Data Marketing Manager Jeff Damir Wireless data business plan is conservative. "We think the numbers will be much bigger [than projected]" - Damir 50% gross margin is definitely attainable - Damir Churn 1% is sustainable in long-term - Barksdale 1% to 1.2% churn per month is achievable - Donahue Market Share Greater than 50% in NY and LA. Less than 50% in Dallas and Houston - Local managements Management Management problems in Los Angeles market have been fixed - Barksdale Page 22 {keywords |LIN Broadcasting Corporation} Operating Statistics - LIN vs. Public Market Peer Group EBITDA Margin(1) LIN 43.5% PEER Group 39.3% AirTouch 43.8% CellularComm 34.7% Centennial 49.9% Contel 30.1% CommNet 17.8% U.S. Cellular 23.4% Vanguard 24.1% EBITDA/POP(2) LIN $14.64 PEER Group $12.10 AirTouch $13.52 CellularComm $10.68 Centennial $5.28 Contel $7.39 CommNet $2.84 U.S. Cellular $2.81 Vanguard $5.32 ________________ (1) Represents consolidated EBITDA margin for Contel Cellular, U.S. Cellular, Vanguard and Centennial. Represents proportionate EBITDA margin for AirTouch, Cellular Communications and CommNet. (2) Represents estimated proportionate EBITDA for all companies. (3) Peer Group includes AirTouch and Cellular Communications. Page 23 {keywords |LIN Broadcasting Corporation} Wall Street Views of Wireless Industry Comparison of LIN Projected EBITDA/POP to Equity Research Views(1) Actual Estimated Projected 1992 1993 1994 2000 2004 Industry Average DLJ $8.01 $11.05 $15.74 $36.24 {symbol 190 \f "Symbol" \s 12|} Kagan {symbol 190 \f "Symbol" \s 12|} 7.23 10.95 41.07 $49.24 LIN $10.92 $13.14 Base Case $15.34 $44.55 $65.08 Upside Case 15.34 51.70 79.07 Sensitivity Case 15.34 36.79 48.89 CS First Boston (1/12/95) 15.88 42.63 61.72 Merrill Lynch (12/21/94) 15.94 45.69 {symbol 190 \f "Symbol" \s 12|} Salomon Brothers (4Q94) 15.67 40.66 {symbol 190 \f "Symbol" \s 12|} _____________ (1) This measure takes into account the three main drivers of value: penetration, revenue per subscriber and operating cash flow (EBITDA) margin. Page 24 {keywords |LIN Broadcasting Corporation} Wall Street Views of LIN Comparison of LIN Projections to Wall Street Views Estimated Projected Compound Annual Growth Rate 1994 2000 2004 1994-2000 1994-2004 Revenues Base Case $912 $2,541 $3,666 17.9% 14.9% Upside Case 912 2,793 4,451 20.5% 17.2% Sensitivity Case 912 2,089 2,771 14.8% 11.8% CS First Boston (1/12/95) 956 2,347 3,426 16.1% 13.6% Salomon Brothers (4Q94) 958 2,281 {symbol 190 \f "Symbol" \s 9|} 15.6% {symbol 190 \f "Symbol" \s 9|} Merrill Lynch (12/21/94) 953 2,512 {symbol 190 \f "Symbol" \s 9|} 17.5% {symbol 190 \f "Symbol" \s 9|} Cash Flow Before Marketing Base Case $636 $1,606 $2,187 16.7% 13.1% Upside Case 636 1,753 2,618 18.4% 15.2% Sensitivity Case 636 1,281 1,685 12.4% 10.2% CS First Boston (1/12/95) 665 1,623 2,317 16.0% 13.3% Salomon Brothers (4Q94) 665 1,471 {symbol 190 \f "Symbol" \s 9|} 14.1% {symbol 190 \f "Symbol" \s 9|} Merrill Lynch (12/21/94) 663 1,759 {symbol 190 \f "Symbol" \s 9|} 17.7% {symbol 190 \f "Symbol" \s 9|} Cash Flow After Marketing Base Case $389 $1,216 $1,849 20.9% 16.9% Upside Case 389 1,411 2,246 24.0% 19.2% Sensitivity Case 389 1,004 1,389 17.1% 13.6% CS First Boston (1/12/95) 408 1,164 1,753 19.1% 15.7% Salomon Brothers (4Q94) 406 1,193 {symbol 190 \f "Symbol" \s 9|} 19.7% {symbol 190 \f "Symbol" \s 9|} Merrill Lynch (12/21/94) 410 1,225 {symbol 190 \f "Symbol" \s 9|} 20.0% {symbol 190 \f "Symbol" \s 9|} Page 25 {keywords |LIN Broadcasting Corporation} Wall Street Views of Wireless Industry Comparison of LIN Projected Penetration to Wall Street Views Estimated Projected Total Wireless Penetration 1994 2000 2004 DLJ 8.28% 26.08% 41.26%(1) Kagan 9.11 28.82 40.16 Cowen 9.11 25.72 41.72 Goldman Sachs (October 1994) N.A. 21.20 N.A. Morgan Stanley (11/25/94) N.A. N.A. 35.00(2) Merrill Lynch (7/25/94) N.A. N.A. 40.00 Penetration of One Average Cellular Provider(3) DLJ 4.11% 9.59% 12.75%(1) Kagan 4.54 12.43 14.59 Cowen 4.55 9.93 12.93 Merrill Lynch (7/25/94) N.A. N.A. 17.85 LIN Penetration Management Base Case 4.25% 13.43% 16.90% Management Upside Case 4.25 13.95 18.15 Sensitivity Case 4.25 11.15 13.61 CS First Boston (1/12/95) 4.17 12.72 17.27 Merrill Lynch (12/21/94) 4.19 12.75 N.A. Salomon Brothers (4Q94) 4.19 11.02 N.A. _____________ (1) DLJ projections are available only to 2003. Data for 2004 has been extrapolated by Lehman Brothers and Bear Stearns. (2) At "industry maturity" which is assumed to be 2004. (3) Assumes that both cellular competitors in each market will have an equal market share. Page 26 {keywords |LIN Broadcasting Corporation} Wall Street Views of Wireless Industry Comparison of LIN Projected ARPU(1) to Wall Street Views Estimated Projected Industry Projected ARPU(1) 1994 2000 2004 Kagan $69.16 $55.66 $51.90 Merrill Lynch(2) N.A. N.A. 52.40 LIN Projected ARPU(1) Management Base Case $82.57 $60.95 $64.93 Management Upside Case 82.57 64.55 73.93 Sensitivity Case 82.57 59.43 61.20 CS First Boston (1/12/95) 83.00 61.00 60.00 Merrill Lynch (12/21/94) 82.00 65.00 N.A. Salomon Brothers (4Q94) 82.63 61.65 N.A. _____________ (1) Average revenue per subscriber per month including wireless data. (2) Research report does not specify whether or not this figure includes wireless data. Page 27 {keywords |LIN Broadcasting Corporation} Calculation of Discount Rates and Terminal Multiples Because discount rates and terminal multiples are critical inputs to our DCF analyses, we have reviewed various data in connection with estimating the appropriate ranges for LIN, including: LIN's business strategy, market position, future prospects and financial projections. Wireless industry trends and projections. Perpetual growth rates implied by our assumed terminal value multiples relative to: - Certain expectations for the economy in terms of real GDP growth and inflation. - CS First Boston's terminal value calculation for LIN using a perpetual growth rate of 7%. - Morgan Stanley's terminal value calculations for Comcast's cable and cellular businesses using perpetual growth rates of 7% and 8%, respectively. Wall Street research analysts' views on discount rates and terminal value multiples used in estimating the potential private market value of LIN. Financial advisors' views on discount rates and terminal value multiples used in performing DCF analyses in connection with certain precedent M&A transactions in the cellular sector. {keywords |LIN Broadcasting Corporation} Cable television transaction multiples, which may be a reasonable indicator of future "steady state" transaction multiples and terminal value multiples for the cellular sector. Page 28 {keywords |LIN Broadcasting Corporation} Terminal Multiples and Discount Rates of Analysts and Advisors Wall Street Equity Research Analyst Views Used to Value LIN Terminal Terminal Discount Firm Date Multiples Year Rate Salomon Brothers 01/04/95 11.0x 2000 12.0% Merrill Lynch 12/21/94 11.0x 2000 12.0% - 15.0% Gerard Klauer Mattison 12/02/94 12.0x - 14.5x 2003 12.0% - 15.0% Goldman Sachs 08/04/94 12.0x 2000 12.0% - 15.0% Financial Advisor Views Terminal Discount Firm Date Transaction Multiples Rate Lazard Freres 12/27/94 GTE/Contel 12.0x - 14.0x 11.0% - 13.0% PaineWebber 12/27/94 GTE/Contel 10.5x - 12.5x 10.0% - 15.0% Merrill Lynch 12/27/94 GTE/Contel 10.0x - 12.0x 10.0% - 14.0% Lazard Freres 2/2/94 AT&T/McCaw 9.0x - 11.0x 9.0% - 13.0% Salomon Brothers 2/2/94 AT&T/McCaw 10.0x - 11.0x 11.0% - 13.0% Page 29 {keywords |LIN Broadcasting Corporation} Estimate of Weighted Average Cost of Capital In deriving the Beta used in calculating LIN's assumed cost of equity, we compared LIN's predicted Beta (estimated by BARRA) with those of comparable companies. LIN Based on Industry LIN(1) Average (2) LIN's Predicted Beta 1.13 1.04 With these Betas, we estimated LIN's cost of equity to be 14%-16% based on the Capital Asset Pricing Model. Assuming a debt-to-capitalization ratio of 35%(3) and a pre-tax cost of debt of 9.0% to 11.0% (5.4% to 6.6% after-tax), LIN's weighted average cost of capital is estimated to be 11%-13%. _____________ (1) Predicted by BARRA. (2) Companies whose predicted Betas are included in the industry average: AirTouch, Cellular Communications, CommNet, Centennial, Contel Cellular, United States Cellular and Vanguard. (3) Assumes a 35% debt to total market capitalization based on 50% bank debt at LIBOR + 2.5% and 50% 7-year notes at an assumed rate of 10.5% based on current trading levels of comparable companies. Leverage ratio based on leverage analysis of cable companies, broadcast companies and Regional Bell Operating Companies. Page 30 {keywords |LIN Broadcasting Corporation} Calculation of Terminal Multiples Derived Terminal Multiples(1) Perpetual Growth Rate(2) 6.5% 7.0% 7.5% 8.0% 8.5% WACC (3) 11.0% 12.9x 14.5x 16.6x 19.3x 23.2x 11.5% 11.6x 12.9x 14.5x 16.6x 19.3x 12.0% 10.5x 11.6x 12.9x 14.5x 16.6x 12.5% 9.7x 10.5x 11.6x 12.9x 14.5x 13.0% 8.9x 9.7x 10.6x 11.6x 12.9x GDP Mean GDP Mean Projected Projected Real Nominal Real GDP CPI Nominal GDP Growth(4) Growth Growth(5) Change(5) Growth (6) 1929-1993 4.2% 12.6% 1994 3.7% 3.0% 6.7% 1950-1993 2.2% 10.7% 1995 2.7% 3.6% 6.3% 1970-1993 1.9% 8.5% 1996 2.2% 3.5% 5.7% 1980-1993 1.2% 5.9% 1997 2.3% 3.5% 5.8% 1985-1993 1.4% 5.0% 1998 2.4% 3.5% 5.9% 1990-1993 0.4% 3.9% 1999 2.4% 3.6% 6.0% ____________________ (1) Terminal multiple of EBITDA calculated based on the formula: 1 / (WACC {symbol 45 \f "Symbol" \s 8|} Perpetual Growth Rate) multiplied by the average ratio of free cash flow (i.e., EBITDA less capital expenditures less working capital needs less unlevered taxes) to EBITDA in the years 2002 through 2004 (i.e., 0.580) as estimated in LIN management's Base Case projections. (2) Represents nominal growth rate. (3) Weighted Average Cost of Capital. (4) Source: Statistical Abstract of the United States 1994 (11th Edition). Values expressed in constant 1987 dollars. (5) Source: Country Data Forecasts 1994, Bank of America. Values expressed in constant 1980 dollars. (6) Represents Projected Real GDP Growth plus CPI Change. Page 31 {keywords |LIN Broadcasting Corporation} Section II-C Other Valuation Benchmarks {keywords |LIN Broadcasting Corporation} Precedent M&A Transactions and Comparable Companies As part of our valuation, we also analyzed selected precedent M&A transactions and public trading parameters of other cellular companies. It is important to note the following: - Cellular companies have historically traded on the basis of the long-term potential cash flow that would be generated as a company penetrated its markets and gained subscribers, and this value translated to a certain enterprise value per POP. - Recently, many leading cellular companies have begun to generate meaningful operating cash flow; accordingly, enterprise value / EBITDA multiples have become the most relevant valuation benchmark in many cases. - Because each cellular company's markets and degree of penetration are unique, per POP values may be more relevant for certain less mature companies whereas EBITDA multiples are more relevant for more mature companies. - Therefore, when reviewing the valuation parameters of precedent M&A transactions in the cellular sector and publicly traded cellular companies, each specific case must be carefully considered to determine which valuation benchmarks are the most relevant under the circumstances. Page 32 {keywords |LIN Broadcasting Corporation} Precedent M&A Transactions and Comparable Companies Given LIN's unique position within the cellular sector, high quality portfolio of properties, large size and significant cash flow generation, we note the following: - EBITDA multiples are the most relevant benchmark for valuing LIN, and per POP values are more of a "fall-back" short-hand valuation methodology. - The universe of relevant M&A transactions and comparable publicly traded cellular companies is fairly limited. - The most relevant transaction is AT&T's purchase of McCaw. Page 33 {keywords |LIN Broadcasting Corporation} AT&T's Acquisition of McCaw Transaction Description and History Deal History November 4, 1992: AT&T announces its intention to invest $3.9 billion for a 33% interest in McCaw. August 16, 1993: AT&T announces its intention to acquire all of McCaw. AT&T stock price at $62.375. September 19, 1994: AT&T/McCaw merger closed. AT&T stock price at $54.00. Summary Terms Each Class A and Class B common share of McCaw, including BT's shares, was exchanged for one AT&T common share. If AT&T stock traded above $71.73 per share during a specified period of time shortly before the closing of the merger, the exchange rate would have been adjusted downward to provide AT&T stock worth $71.73 for each McCaw share, subject to a minimum of 0.909 AT&T shares. If AT&T stock traded below $53.00 per share during a specified period of time shortly before the closing of the merger, the exchange rate would have been adjusted upward to provide AT&T stock worth $53.00 for each McCaw share, subject to a maximum of 1.111 AT&T shares. AT&T shares closed at $54.00 the day the transaction closed. Therefore no adjustment was made. The transaction was tax-free to McCaw shareholders and was accounted for as a "pooling of interests." Transaction Valuation Parameters {keywords |LIN Broadcasting Corporation} Announced Equity Enterprise Adjusted Enterprise (Closed) Value Value(1) Value(2) 8/16/93 (9/19/94) $13,559 $17,387 $16,825 Adjusted Enterprise Value / 1993E EBITDA(3) 1994E EBITDA POPs(4) 21.1x 15.9x $280 (1) Equity value plus $4,410 million of debt (100% of McCaw's and 52% of LIN's) less $358 million of cash (100% of McCaw's and 52% of LIN's adjusted to exclude an estimated $12.5 million payable in connection with the redemption of the LCH Preferred Stock) less option proceeds of $224 million for 11.2 million McCaw options, assuming an average exercise price of $20 per option. (2) Adjusted enterprise value is enterprise value less non-cellular operations which include: (i) 472,500 paging units (the average of 1992 and 1993 year-end paging subscribers); (ii) 52% of LIN's media operations valued at 8x LTM EBITDA of $67.5 million (excluding an estimated $2 million attributable to Guest Informant); and (iii) McCaw's and 52% of LIN's ownership interest in AMSC valued at $44.5 million. (3) Based on estimated 1994 EBITDA of $1,056 million (excluding an estimated $18.6 million of EBITDA attributable to McCaw's interests in LIN's Philadelphia market) based on consensus of Wall Street analysts at the time the transaction was announced. (4) Based on 60.0 million net POPs excluding 48% of LIN's net POPs and LIN's Philadelphia POPs. Page 34 {keywords |LIN Broadcasting Corporation} LIN versus McCaw Stand-Alone LIN versus McCaw Stand-Alone Demographic and Operating Comparisons (1) LIN McCaw (Excl. LIN) Qualitative Measure Controlled Top 5 Markets(2) 2 0 Controlled Top 10 Markets(2) 4 1 Net POPs (MM) 24.8 48.9 Total Top 10 Market Net POPs (MM) 24.3 2.8 % Controlled POPs(3) 100% 96% % RSA POPs(3) 1.6% 5.6% % Households Income > $50K(4) 38.7% 27.2% % Commute Time > 30 min. (4) 46.1% 28.1% POPs / Square Mile(4) 2,453 496 Quantitative Measure Penetration 3.7% 3.8% Revenue (Proportionate) ($MM) $426.5 $790.6 Revenue / Sub / Month $85.45 $80.69 EBITDA ($MM) $350.8 $615.0 EBITDA Margin 44.3% 42.1% EBITDA / POP $14.17 $12.96 {keywords |LIN Broadcasting Corporation} ________________ (1) All data is for last twelve month period ending June 30, 1994. (2) Controlled or shared (equal) control. (3) Source for McCaw: DLJ (Summer '94); excludes international POPs. (4) POP weighted average. Page 35 {keywords |LIN Broadcasting Corporation} Imputed Valuation of LIN Based on AT&T / McCaw Transaction Imputed Value for McCaw's Majority Stake in LIN Cellular Assumed per POP Enterprise Imputed Value of McCaw's Value 1994E 6/30/95 Per non-LIN Properties (100% of EBITDA Share Value LIN)(1) Per POP(2) Multiple(3) of LIN(4) (MM) $235 $10,927 $447 27.7x $188 250 9,563 391 24.2 162 265 8,199 335 20.8 135 280 6,835 280 17.3 109 Implied McCaw LIN Stand Alone Premium to Implied Multiple of McCaw Implied 6/30/95 LIN "Closing Year" Stand Alone Multiple for Stock EBITDA Multiple LIN Price(5) 15.9x 0% 15.9x $135 15.6x 10% 17.2x 148 15.3x 20% 18.4x 160 15.0x 30% 19.5x 171 _________________ (1) Based on (i) cellular enterprise value for McCaw of $16,825 million and (ii) a private market value of McCaw's 47.3 million non-LIN net POPs (i.e., excluding McCaw's 52% stake in LIN) at $235 to $280 per POP. (2) Based on 24.4 million net LIN POPs at announcement date. (3) Based on 1994E EBITDA of $395 million which is a consensus of Wall Street analysts' forecasts at the time the transaction was announced (excluding an estimated $35.8 million of EBITDA attributable to LIN's interest in Philadelphia). (4) Based on POP values. (5) Based on (i) management's 1995E EBITDA of $535 million; (ii) projected June 30, 1995 net debt of $1,560 million; and (iii) other operations of $112 million which include WOTV and WOOD-TV and LIN's AMSC investment. Page 36 {keywords |LIN Broadcasting Corporation} Other Precedent M&A Transactions In general, we believe that other precedent M&A transactions presented on the following page have only limited relevance for assessing the private market value of LIN, primarily for the following reasons: - Most of these transactions involve the acquisition of less attractive cellular properties than LIN. For example, only 49% of the total POPs merged in the Bell Atlantic / NYNEX transaction were located in the top twenty U.S. markets. Similarly, only 52% of the total POPs merged in the U S WEST / AirTouch transaction were located in the top twenty U.S. markets. Conversely, over 98% of LIN's POPs are in the top ten U.S. markets. - Two of these transactions (i.e., U S WEST / AirTouch and Bell Atlantic / NYNEX) involve cellular joint ventures as opposed to outright acquisitions. - Several of these transactions involve minority buy-ins (i.e., GTE / Contel Cellular) or the purchase of a minority stake (i.e., CGE / SBC Communications), which do not include full control premiums. Because of these various considerations and LIN's preeminent market position, we are comfortable that our private market value of LIN is based on EBITDA multiples and per POP values which are significantly different than those reflected in the precedent M&A transactions shown on the following page. Page 37 {keywords |LIN Broadcasting Corporation} Other Precedent M&A Transactions Other Precedent M&A Transactions ($ millions, except per POP data) Date Announced Acquirer Target Type of Deal Dec-94 GTE Contel Cellular Minority Buy-In Nov-94 SNET Bell Atlantic/RI 100% Acquisition Oct-94 CGE SBC Comm. Minority Stake Jul-94 Cellular JV U S WEST/AirTouch Joint Venture Jun-94 Cellular JV Bell Atlantic/NYNEX Joint Venture Jun-94 LIN CSI Minority Buy-In Feb-94 SBC Comm. Associated Comm. 100% Acquisition Cellular Enterprise Value / Total Projected Enterprise Cellular Value(1) EBITDA POP $254 18.0x(2) $191(5) 360 N.A. 236 247 N.A. 295(6) 13,500 N.A. 253 12,750 N.A. 237 145 13.8x(3) 185 680 20.9x 186(2) (1) Includes both cellular and non-cellular enterprise value. (2) Represents multiple of 1995E EBITDA. (3) Represents multiple of 1994E proportionate EBITDA. (4) Represents a multiple of 1994E proportionate EBITDA, which is estimated by multiplying consolidated EBITDA for the period ending September 30, 1993 by the ratio of proportionate POPs to consolidated POPs and growing this value by 50%. (5) Lazard Freres values the GTE/Contel Cellular minority transaction at 21.2x - 23.2x 1995E consolidated EBITDA (GAAP basis) and $196 - $215 per POP. Lazard Freres performed a market-by-market valuation of Contel Cellular in which Lazard estimated the value of Contel Cellular's Los Angeles and Houston markets at $316 and $311 per POP, respectively. (6) Lazard Freres valued SBC/CGE minority transaction at $323 per POP. Page 38 {keywords |LIN Broadcasting Corporation} Selected Publicly Traded Cellular Companies Trading Data for Selected Publicly Traded Cellular Companies Adjusted Enterprise Value / As of February 10, 1995 ($ in millions, except per POP data)
Gross Adjusted 1994E 1995E Enterprise Enterprise Cellular Cellular Value Value(1) EBITDA(2)(3) EBITDA(2)(3) POPs Major City Operations LIN $8,800 $8,702 20.7x 17.1x $343 AirTouch(4) 12,702 $7,539 14.7 11.3 215 Cellular Communications 2,225 2,167 22.2 16.2 276 Semi-Urban Operations Contel Cellular(5) $4,564 $4,564 25.1x 17.9x $188 U.S. Cellular 2,818 2,818 38.9 21.0 116 Vanguard Cellular 1,344 1,324 29.8 16.8 200 Small Rural Operations Centennial Cellular $734 $731 16.2x 10.8x $118 CommNet Cellular 490 434 38.2 22.9 138 {keywords |LIN Broadcasting Corporation} (1) Represents gross enterprise value less estimated values of non-cellular assets. (2) Most cellular companies have substantial operations that are not consolidated or that are consolidated but are less than 100% owned. Therefore, EBITDA is presented on a proportionate basis when available (AirTouch, Cellular Communications, LIN and CommNet). When only consolidated financial data are available (Contel Cellular, Centennial Cellular, U.S. Cellular and Vanguard Cellular), we have estimated proportionate EBITDA by multiplying consolidated EBITDA by the ratio of proportionate POPs/consolidated POPs. (3) Based on EBITDA estimates from recent Wall Street research reports. (4) AirTouch has large international cellular operations which are removed from enterprise value to arrive at a domestic cellular valuation. International operations are valued at the midpoint of a $60 to $100 range per POP. (5) Trading parameters reflect pending acquisition of Contel Cellular's public minority shares by GTE. Page 39 {keywords |LIN Broadcasting Corporation} Summary of McCaw / LIN 1989 Transaction In 1989, McCaw won a hotly contested battle with BellSouth for control of LIN. At the time, McCaw held 5.1 million shares (approximately 10%) of LIN. McCaw agreed to: - Purchase 21.9 million LIN shares (approximately 42%) for $154.11 in cash ($3.4 billion). - Contribute McCaw's 5% interest in Los Angeles to LIN. - Enter into the PMVG to provide the public shareholders with a mechanism for receiving private market value for their remaining shares. In addition, LIN purchased $425 million worth of McCaw stock and distributed it to its shareholders. At a price of approximately $154 per share, LIN was valued at $385 per POP. Page 40 {keywords |LIN Broadcasting Corporation} Potential Investor Returns (IRRs) IRR Sensitivity to Different PMVG Outcomes Price as of 2/10/95 = $138.75 Annualized IRR with Buyout on: Buyout Unadjusted Price 6/30/95 9/30/95 12/31/95 6/30/96 Return(1) $135 -6.9% -4.2% -3.0% -2.0% -2.7% 140 2.4% 1.4% 1.0% 0.6% 0.9% 145 12.2% 7.2% 5.1% 3.2% 4.5% 150 22.5% 13.0% 9.2% 5.8% 8.1% 155 33.5% 19.0% 13.3% 8.3% 11.7% 160 45.0% 25.1% 17.4% 10.8% 15.3% 162 49.8% 27.6% 19.1% 11.8% 16.8% 165 57.1% 31.3% 21.6% 13.3% 18.9% 170 69.8% 37.7% 25.7% 15.8% 22.5% 175 83.2% 44.1% 29.9% 18.2% 26.1% (1) Actual return which is not annualized (e.g., $155 vs. $138.75 = 11.7% return). Page 41 LIN Broadcasting Corporation Section III Pro Forma Business Combination Between AT&T and LIN LIN Broadcasting Corporation Pro Forma Business Combination Analysis AT&T / LIN Business Combination Analysis All Cash All Common Stock(1) Purchase Price (per share) $140 $155 $170 $140 $155 $170 Year EPS Impact(2) 1995E (1.7%) (2.0%) (2.3%) (2.4%) (2.8%) (3.1%) 1996E (2.3%) (2.8%) (3.3%) (4.3%) (5.0%) (5.3%) Pre-Tax Synergies for No Dilution: Dollar Amount (millions)1995E $151 $178 $204 $221 $254 $286 1996E $229 $282 $335 $415 $483 $551 Percent of LIN's Proportionate Revenue 1995E(3) 25.6% 30.1% 34.6% 37.4% 43.0% 48.5% 1996E 15.4% 19.0% 22.6% 27.9% 32.5% 37.1% Total Debt / Total Capital: Pro Forma 9/30/94(4) 62.1% 62.4% 62.8% 54.3% 53.9% 53.4% AT&T Standalone 9/30/94 58.0% 58.0% 58.0% 58.0% 58.0% 58.0% Pro Forma LIN Ownership in AT&T(5) {symbol 45 \f "Symbol" \s 10|} {symbol 45 \f "Symbol" \s 10|} {symbol 45 \f "Symbol" \s 10|} 4.7% 5.2% 5.6% (1) Based on assumed AT&T share price of $52.25 on February 10, 1995. (2) Assumptions: (i) AT&T standalone earnings per share projections based on consensus Wall Street research estimates (i.e., 1995E = $3.54; 1996E = $3.99); (ii) LIN projections based on Base Case; (iii) AT&T short-term borrowing rate of 5.50%, long- term borrowing rate of 8.25% and tax rate of 38%; (iv) goodwill amortization of 40 years; and (v) June 30, 1995 closing. (3) Since a June 30, 1995 closing is assumed, figures represent the dollar amount of synergies that need to be generated during the second half of 1995 divided by one half of LIN's proportionate 1995 revenue (to reflect the fact that synergies must be realized in the six month period from July 1, 1995 to December 31, 1995). (4) AT&T September 30, 1994 capitalization and pro forma projected June 30, 1995 LIN capitalization. (5) Based on 1,563,000,000 AT&T common shares outstanding at October 31, 1994. Page 42 LIN Broadcasting Corporation Section IV Potential Third Party Interest LIN Broadcasting Corporation Potential Third Party Interest in LIN It is the joint view of Bear Stearns and Lehman Brothers that a deep market exists for LIN. Demand would come from individual strategic buyers and consortia. Among the factors supporting our conclusions are: - LIN's premier collection of cellular assets. - Cellular markets which would form the cornerstone of a nationwide wireless strategy. - The acquisition of LIN from AT&T would impair AT&T's nationwide wireless and local bypass strategies. - New York, Los Angeles, Dallas and Houston are key markets in an international strategy for a U.S. or non-U.S. company. - The recent experiences of Bear Stearns and Lehman Brothers in representing wireless buyers and sellers. - The assertion by AT&T's Communications Services Group head that LIN properties would attract a high level of interest: "McCaw can be forced to sell out its 52% interest [in LIN], which BellSouth originally sought to buy and other RBOCs are assuredly interested in buying. Given McCaw's financial condition, there is, to say the least, a great risk that its LIN interests will be lost to RBOCs . . . " Alex Mandl in a sworn affidavit dated 5/26/94 regarding AT&T's purchase of McCaw. Page 43 LIN Broadcasting Corporation Potential Third Party Buyers of LIN Under the PMVG, the Appraisers must consider what potential purchasers would pay for LIN. Potential buyers for all or part of LIN in addition to AT&T/McCaw would include: AirTouch/U S WEST(1) Comcast SBC Communications Ameritech GTE Sprint/Wireless Co. Bell Atlantic/NYNEX(1) MCI TDS/U.S. Cellular BellSouth Pacific Telesis Craig McCaw Certain foreign buyers, such as Vodafone, British Telecom, Deutsche Telecom, STET, Compagnie Generale des Eaux, NTT and France Telecom, may be interested in participating as partners of a U.S. buyer in a transaction involving one or more of the LIN properties. Non-telecommunications companies which may also have an interest in LIN include EDS, General Electric and Time Warner. (1) AirTouch/U S WEST and Bell Atlantic/NYNEX are each considered single buyers as each pair of companies has agreed to operate their domestic cellular businesses as joint ventures. Page 44 LIN Broadcasting Corporation Potential Transaction Structures A Morris Trust, and similar spin-offs or series of spin-offs, are transaction structures that will allow LIN to sell markets separately in a tax efficient manner. Another tax efficient way for LIN to sell markets separately would be through the use of a minority tax certificate pursuant to Section 1071. - Market acceptance of a tax certificate sale is evidenced by the LIN/McCaw/BellSouth offer to U S WEST for San Diego cellular which included such a structure, although Congress is currently reviewing the ability to use tax certificates and it is possible that this structure may not be available to a purchaser in the future. The chart on the following page details potential buyers and their interests in LIN properties. Page 45 LIN Broadcasting Corporation Potential Third Party Buyers of LIN Entire Company BellSouth, Sprint/Wireless Co. (1), Ameritech, Sprint (1), MCI Selected Property Combinations L.A., Dallas, Houston: BellSouth, Ameritech, Sprint(1), MCI N.Y., Dallas, Houston: BellSouth, Ameritech, Sprint(1), MCI N.Y., L.A., Houston: BellSouth, SBC, Ameritech, Sprint(1), MCI N.Y., L.A., Dallas: BellSouth, GTE, Ameritech, Sprint(1), MCI N.Y., Dallas: BellSouth, GTE, Ameritech, Sprint(1), MCI N.Y., Houston: BellSouth, SBC, Ameritech, Sprint(1), MCI L.A., Houston: BellSouth, SBC, Ameritech, Sprint(1), MCI L.A., Dallas: BellSouth, GTE, Ameritech, Sprint(1), MCI Individual Properties New York: SBC, BellSouth, Comcast, GTE, Ameritech, Sprint(1), MCI Los Angeles: BellSouth, SBC, GTE, Ameritech, Sprint(1), MCI Dallas: BellSouth, Consortium(2), GTE, Ameritech, Sprint(1), MCI, TDS/U.S. Cellular, SNET Houston: BellSouth, SBC, Consortium(2), Ameritech, Sprint(1), MCI, TDS/U.S. Cellular, SNET _________________ (1) Sprint includes Wireless Co. which is a PCS Consortium consisting of Sprint, TCI, Cox and Comcast. (2) Consists of Bell Atlantic, NYNEX, AirTouch, US West or PCS PRIMECO, their wireless joint venture. Page 46 LIN Broadcasting Corporation Potential Third Party Buyers of LIN Transaction Structures - Entire Company Example 1: BellSouth buys all of LIN BellSouth could buy LIN for all cash, all stock or a combination of cash and stock. Advantages to BellSouth: - BellSouth will become the largest U.S. cellular operator. - BellSouth will control four of the top ten markets. - 100% control of Los Angeles and Houston. - Close to 100% control of New York. - Expanded footprint in the Southwest. BellSouth could bring in a partner(s), such as EDS and/or Vodafone, to provide financing and to absorb part of the dilution. - In a taxable transaction, there would be no limit on the form or amount of an investment by an outside investor, although foreign investors cannot control more than 25% of the equity of a U.S. cellular holding company. Page 47 LIN Broadcasting Corporation Potential Third Party Buyers of LIN Transaction Structures - Entire Company Example 2: MCI buys all of LIN MCI could also buy LIN for some combination of stock and cash. Advantages to MCI: - LIN could form the cornerstone of national wireless strategy for MCI. - Gives MCI wireless access to the local loop in four of the top ten U.S. markets. - Forces AT&T to find alternative wireless providers in four major markets in order to effect nationwide wireless strategy. MCI could also bring in a financial partner. - Given that BT has already invested in MCI, BT could be a logical partner for a major acquisition. Page 48 LIN Broadcasting Corporation Potential Third Party Buyers of LIN Transaction Structures - Entire Company Example 3: A partnership formed by MCI, BellSouth and Ameritech buys all of LIN Partnership would buy LIN for all cash. LIN would form cornerstone of national wireless strategy for all three partners. All three partners, jointly, would be better positioned to compete against AT&T. Forces AT&T to find alternative wireless providers in four major markets in order to implement nationwide wireless (and local) strategy. Partnership structure will minimize earnings dilution to each partner relative to solo acquisition. Page 49 LIN Broadcasting Corporation Potential Third Party Buyers of LIN Transaction Structures - Parts of LIN Example 4: SBC Communications buys all of LIN except Dallas; GTE (or AirTouch or BellSouth) buys Dallas Southwestern Bell could buy LIN for stock. Immediately prior to this purchase, LIN could spin off Dallas to LIN shareholders. GTE could then buy Dallas for stock. Advantages to SBC Communications and GTE include: - Gives SBC Communications control of four of the major Northeast corridor markets: New York, Boston, Washington and Baltimore. This transaction would better position SBC Communications to compete against the US WEST/AirTouch/Bell Atlantic/NYNEX Consortium which also controls these markets. - GTE would be able to expand its footprint in the Texas market. An outside investor, such as Compagnie Generale des Eaux or Deutsche Telecom, could invest in LIN with SBC Communications, provided that it did not receive securities which conferred greater than 20% voting interest in LIN. Page 50 LIN Broadcasting Corporation Potential Third Party Buyers of LIN Transaction Structures - Parts of LIN Example 5: SBC Communications buys all of LIN except Dallas; GTE buys Dallas using a minority tax certificate LIN sells Dallas to a minority-controlled entity in which GTE is an investor, and LIN receives a tax certificate in addition to cash consideration. A tax certificate can be used by LIN or a subsequent purchaser of LIN to eliminate capital gains tax on the sale of one or more markets if LIN, or a subsequent purchaser of LIN, - reinvests the proceeds from the sale in like assets within approximately two years; or - writes down assets by amount of gain. LIN (ex-Dallas) is then sold for cash, stock or a combination to SBC Communications. Page 51 EXHIBIT (b)(5) Materials prepared by Wasserstein Perella & Co.
CONFIDENTIAL LIN BROADCASTING Mutually Designated Appraiser Valuation March 7, 1995 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Table of Contents 1. Introduction A. Overview of Appraisal Process B. Overview of LIN Broadcasting C. Summary Analysis of LIN at Various Prices D. General Valuation Considerations 2. Discounted Cash Flow Analysis A. Summary of Bear Stearns/Lehman Brothers and Morgan Stanley DCF Valuations B. LIN Management Case C. LIN Cellular McCaw Case (without AT&T Synergies) D. LIN Cellular Sensitivity Case E. DCF Discussion 3. Precedent Transactions and Public Company Trading Analysis A. AT&T's Acquisition of McCaw: Summary Analysis and Perspective B. Summary of Other Precedent Transactions C. Selected Public Company Trading Analysis 4. Discussion of Potential Third Party Purchasers and Alternatives A. Summary Observations B. Selected Illustrative Dilution Analysis 5. Selected Recent Analyst Comments on LIN 6. Appendices A. LIN Cellular Segmented DCF (Management Case) B. LIN's Organizational Structure Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Introduction Wasserstein Perella & Co. Overview of Appraisal Process Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Overview of Appraisal Process Wasserstein Perella & Co. Charter Wasserstein Perella & Co. (WP&Co.) has been retained by McCaw Cellular Communications, Inc. ("McCaw"), a wholly owned subsidiary of AT&T Corp. ("AT&T"), and LIN Broadcasting Corporation ("LIN") to act as the "Mutually Designated Appraiser" and to determine the "Mutually Appraised Amount" pursuant to the "Private Market Value Guarantee" dated December 11, 1989, between the McCaw and LIN. Definition of Private Market Value ". . . private market value per Share is the private market price per Share (including control premium) that an unrelated third party would pay if it were to acquire all outstanding Shares (including the Shares held by Offeror [McCaw] and its affiliates) in an arm's-length transaction, assuming the Company was being sold in a manner designed to attract all possible participants (including the Regional Bell Operating Companies) and to maximize stockholder value, including if necessary through the sale or other disposition (including tax-free spin-offs, if possible) of businesses prohibited by legal restrictions to be owned by any particular buyer or class of buyers (e.g., the Regional Bell Operating Companies)." Interpretation In arriving at its view, at the request of both the Independent Committee and McCaw, WP&Co. has applied the definition of private market value based on the interpretation of Paul Weiss Rifkind Wharton & Garrison set forth in such firm's opinion to WP&Co. dated March 7, 1995, set forth in Appendix C. WP&Co. has also relied on advice from Cravath Swaine and Moore on taxation and other relevant legal considerations (not including the interpretation of the Private Market Value Guarantee). Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Overview of Appraisal Process (cont'd) WP&Co. Senior Team Bruce Wasserstein Chairman & CEO Fred Seegal President Laurence Grafstein Managing Director Andrew Moore Managing Director Joe Yurcik Managing Director WP&Co. was assisted in its valuation process by the cooperation and professionalism of the numerous parties involved in the appraisal process, including LIN management, AT&T/McCaw management, Bear Stearns, Lehman Brothers, Morgan Stanley, and their various legal representatives. We are greatly appreciative of the efforts expended on our behalf. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Overview of LIN Broadcasting Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Top Ten Cellular Markets
LIN serves 4 of the 10 largest cellular markets in the U.S. Top Ten Cellular Markets Population Rank Market ('000) A-Side B-Side - ------ ---------------- ---------- ----------- --------- - --------------------------------------------------------------------------------------- 1 New York 14,939 LIN NYNEX - --------------------------------------------------------------------------------------- 2 Los Angeles 14,588 BellSouth/LIN AirTouch - --------------------------------------------------------------------------------------- 3 Chicago 7,506 SBC Ameritech 4 Philadelphia 4,918 Comcast Bell Atlantic 5 Detroit 4,607 AirTouch Ameritech - --------------------------------------------------------------------------------------- 6 Dallas 4,202 LIN SBC - --------------------------------------------------------------------------------------- 7 Boston 4,010 SBC NYNEX - --------------------------------------------------------------------------------------- 8 Houston 3,892 LIN/BellSouth GTE - --------------------------------------------------------------------------------------- 9 San Francisco 3,832 AT&T/AirTouch GTE 10 Washington 3,804 SBC Bell Atlantic LIN BROADCASTING - ----------------------------------------------------------------------------------------- Overview of LIN's Cellular Operations Controlling Interests in Top Ten Markets Total Population(1) ('000) ------------- 1 Consortium(2) 50,936 ------------------------------------------------------- 2 LIN Broadcasting 37,953 ------------------------------------------------------- 3 SBC 19,608 4 BellSouth 18,619 5 GTE 7,732 6 Ameritech 7,506 7 Comcast 4,918 8 AT&T 3,832 - ------------------ (1) Total population of control and co-control ownership interests in top ten cellular markets. (2) Consortium of Bell Atlantic/NYNEX/AirTouch/US West. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Summary of LIN's Cellular Operations(1) LIN's Interests Population Market B-Block Name and Location Equity Voting (MM)(2) Rank(2) Competition - ----------------- ------ ------ ---------- ------- --------------- Propor- Total tionate ----- ------- Cellular One, 98.33% 100.0% 14.9 14.7 1 NYNEX/Bell Atlantic New York Los Angeles Cellular Telephone Company, Los Angeles 40.0%(3) 50.0% 14.6 5.8 2 AirTouch Communications Metrocel, Dallas-Ft. Worth 60.4% 60.4% 4.2 2.5 6 SBC Communications Houston Cellular Telephone Company, Houston 56.3%(3) 50.0% 3.9 2.2 8 GTE Galveston Cellular Telephone Company, Galveston 34.6% 50.0% 0.2 0.8 169 GTE Cellular One Texas RSA-17, Newton, TX 100.0% 100.0% 0.2 0.2 N.A. GTE Connecticut RSA-1, Litchfield, CT 100.0% 100.0% 0.2 0.2 N.A. SNET\NYNEX ------ ------ TOTAL 38.3 25.7 - --------------------- (1) Source: LIN Management. (2) Source: Donnelley Marketing Information Services Estimate for 1993. (3) BellSouth ownes 60% of LA Cellular equity and 44% of Houston Cellular equity. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN Cellular Market Breakdown by POPs [Pie Chart Illustrating LIN Cellular Market Breakdown by POPulation] -------------------------------------------- Market POPs(mm) % of Total ------ -------- ---------- New York 14.69 57.1% Los Angeles 5.83 22.7% Dallas 2.54 9.9% Houston 2.19 8.5% Litchfield, CT 0.23 .9% Newton, TX 0.17 .7% Galveston, TX 0.08 .3% TOTAL POPs 25.7MM Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Pie Chart Illustrating Proportionate Revenues and Cash Flows by Cellular Market ($MM)(1) Market 1995E Revenues % of Total Market 1995E Cash Flows % of Total - ------------- -------------- ---------- ------------- ---------------- ---------- New York $634.5 54.7% New York $286.6 53.2% Los Angeles $270.4 23.3% Los Angeles $135.5 25.2% Dallas $133.3 11.5% Dallas $58.4 10.8% Houston $113.2 9.8% Houston $55.1 10.2% Newton, TX $4.2 .4% Newton, TX $1.8 .3% Galveston, TX $2.1 .2% Galveston, TX $1.0 .2% Litchfield, CT $2.1 .2% --------- -------- Total $1,159.9(2) Total $538.3(3) - ---------------------- (1) Based on LIN management base case projections. (2) Excludes wireless date, long distance and additional products. (3) Excludes the Litchfield, CT RSA, as its csh flows are negative for 1995E. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Market Share by System(1) Pie Charts Illustrating Market Share By System New York Los Angeles - -------------------------------------- ------------------------------------------- LIN 52% NYNEX 48% LA Cellular 49% AirTouch 51% (LIN/BellSouth) Dallas Houston - -------------------------------------- ------------------------------------------- LIN 41% SBC 59% HCTC 46% GTE 54% (LIN/BellSouth) - --------------------- (1) Based on LIN management estimates conveyed at due diligence session. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Bar Charts Illustrating Demographic Characteristics of LIN's Major Markets Percentage of Households with Population per Square Mile Greater than $50,000 Annual Income - -------------------------------------- ------------------------------------------- New York 3,952 New York 41.8% Houston 567 Los Angeles 35.5% Dallas 525 Houston 34.7% Los Angeles 471 Dallas 34.6% U.S. Average 74 U.S. Average 26.5% Commute Time Greater Than 30 Minutes Local Interstate Traffic Density - -------------------------------------- ------------------------------------------- New York 51.1% Houston 101,527 Houston 42.3% Los Angeles 96,042 Los Angeles 40.5% New York 92,690 Dallas 36.5% Dallas 58,816 U.S. Average 28.5% U.S. Average 29,090 - ----------------- Source: Kagan's Cellular Telephone Atlas. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Overview of LIN's Other Assets Patents, American Trademarks Customer Mobile and Intellectual Other Information WOOD-TV Satellite Property LIN/McCaw System Corporation Rights Assets - ------------- ---------- -------------- ---------------- -------------- - - Developing - Acquired in - Owns 1,860,214 - Owns a pro rata - May have rights (with Rogers April 1993 American Mobile share of all to other assets Cantel, Inc. and affiliated Satellite (AMSC) patents, trade- and businesses of Canada) a with the NBC shares (7.6% of marks and intel- of McCaw that new generation Network outstanding lectual property have been of customer shares rights developed developed or information - Serves the by or for McCaw obtained by systems Grand Rapids- - AMSC expects to since McCaw McCaw utilizing to improve Kalamazoo- launch its first obtained control funds of LIN/ customer Battle Creek satellite to of LIN McCaw or service Market, with provide mobile employees of a population voice service - Has not applied LIN - - System uses of aprox. to areas not for patents or proprietary 1.7 million served by trademarks in its software cellular in the own name subse- being U.S. quent to McCaw's developed by acquisition in LIN/McCaw - AMSC is publicly 1990 traded on NASDAQ - - Phases 1 and 2 have been rolled out in a number of markets. Entire system will be rolled out throughout the LIN markets by the end of 1995 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Wireless Data Overview(CDPD) - -- Wireless data can be transmitted via public or public network - -- Private wireless data networks typically include wireless LANS and networks which lease satellite transmission facilities - -- Public wireless data networks include: 1. One-way broadcast (paging) 2. Two-way, circuit-switched (cellular voice networks using modems for data transmission) 3. Two-way, packet-switched (Ardis, RAM, CDPD) - -- Circuit-switched networks establish an end-end transmission channel similar to that of a voice call - -- Packet-switched networks converts messages into small data packets and send each packet over the network with a destination address - -- Cellular Digital Packet Data (CDPD) is simply packet-switched data over the existing cellular network Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Tax Basis Summary(1) Tax Basis in Cellular Assets (Partnership interests) New York $1,607,727,552 Los Angeles 123,192,225 Texas 193,866,571 Litchfield 33,000,000 --------------- $1,957,786,378 IN Cellular Holdings Basis in Stock of Holdings Companies LCCNY (owns NY interest) $1,643,046,283 LCCCA 175,482,013 LCCTX 163,696,179 Litchfield Acquisition Corp. 1,000 --------------- $1,982,225,475 - ----------------- (1) Source: LIN Management. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Annotated Bar Graphs Illustrating LIN Stock Price and Volume History (Monthly from January 1, 1989 - February 28, 1995) - -- June 6, 1989 McCaw bid $120 per share for LIN - -- December 6, 1989 McCaw bid $154.11 per share for LIN - -- November 4, 1992 AT&T announced bid for 33% of McCaw - -- August 13, 1993 AT&T announced 100% acquisition of McCaw - -- June 5, 1994 Announced spin-off of LIN-TV - -- September 14, 1994 AT&T closed acquisition of McCaw - -- February 15, 1995 Morgan Stanley (AT&T valued LIN at $105 a share Bear Stearns/Lehman Brothers (LIN Independent Directors) valued LIN at $155 a share - -- December, 1994 Completed Spin-Off of LIN-TV 1/31/89 6/30/89 12/31/89 6/30/90 Volume (000) (Bars) 12,339 9,201 6,505 5,156 8,476 15,999 18,287 9,019 10,586 14,144 9,523 10,796 15,851 7,928 7,453 8,432 6.073 3,255 Stock Price Line 82 88 88 95 102 116 109 106 111 112 120 120 106 112 82 64 73 74 12/31/90 6/30/90 12/21/91 Volume (000) (Bars) 3,740 5,500 3,810 4,653 4,564 3,417 5,035 3,763 2,032 2,250 1,996 2,347 2,236 1,864 1,340 1,632 2,513 2,281 Stock Price Line 66 54 45 43 58 62 65 67 63 68 68 59 68 73 74 72 63 72 6/30/92 12/31/92 6/30/93 Volume (000) (Bars) 3,638 1,272 1,177 1,370 2,908 2,237 1,958 1,316 1,323 2,180 2,430 2,066 5,795 2,619 2,046 2,157 2,366 1,433 Stock Price Line 75 79 75 73 67 64 70 67 74 68 78 77 78 83 84 89 98 99 12/31/93 6/30/94 12/31/94 Volume (000) (Bars) 2,634 4,217 3,168 3,923 2,287 1,281 3,090 1,756 1,619 3,433 1,692 2,144 2,327 2,114 2,477 1,995 1,621 1,923 Stock Price Line 100 118 116 114 110 111 116 112 108 106 117 120 125 134 139 138 144 134 2/28/95 Volume (000) (Bars) 5,515 4,800 Stock Price Line 139 129 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Annotated Bar Graph and Line Chart of LIN Stock Price and Volume History (Weekly from January 1, 1994 - March 3, 1995) - -- June 5, 1994 Announced spin-off of LIN-TV - -- September 19,1994 AT&T closed acquisition of McCaw - -- February 15, 1995 Morgan Stanley (AT&T) valued LIN at $105 a share Bear Stearns/Lehman Brothers (LIN Independent Directors) valued LIN at $155 a share Date 1/7/94 3/4/94 Volume (000) (Bars) 783 856 590 583 499 632 490 346 481 212 390 127 476 1,049 679 Stock Price Line 110 108 111 115 115 113 115 111 113 111 111 112 108 105 105 Date 4/29/94 6/24/94 Volume (000) (Bars) 1,019 687 448 222 498 483 204 492 264 258 1,025 397 730 814 329 293 Stock Price Line 105 106 112 112 115 118 119 120 120 115 121 120 125 125 125 126 Date 8/19/94 10/14/94 Volume (000) (Bars) 378 393 601 555 364 1,053 663 289 601 650 363 336 160 131 648 290 Stock Price Line 127 129 132 134 136 139 140 139 135 136 135 137 138 140 140 139 Date 12/9/94 2/3/95 3/3/95 Volume (000) (Bars) 1,007 657 322 257 118 2,869 355 1,093 969 840 519 2,724 569 1,224 Stock Price Line 143 140 142 145 134 132 135 138 138 139 139 129 130 129 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Wireless Data - Summary Observations - -- Many forces are driving the demand for wireless data services - Mobile workforce - Remote enterprise access and information exchange - Mobile computing technology - -- Existing technologies have been unsuccessful owing to: - Performance: Speed, latency, reliability, security - Device size and battery requirements - Limited coverage - Limited applications - Service cost - -- The market window is open but CDPD technology is unproven - -- Alternative technologies could confuse customers and impair adoption - CSC data service is available - ARDIS and RAM offer nationwide packet radio service - ESMR service - Narrowband PCS services - -- Wireless data success is dependent on the information technology industry Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Wireless Data Industry Situation Analysis ----------------------------------------- CDPD Momentum | User Device Application Software | Challenges - ------------------ | | ----------------- | | - - Compelling Application | Device | - Integration | | Requirements - - Mobile Computing | Wireless Data Services | Paradigm | | - Information | | Technology Industry | | Dependency | | - - Latent Demand | Communication Communication | - Multiplicity of | | Applications | | - - Technology Convergence | Software Hardware | - Corporate MIS | | Concerns ---------------------------------------- - Industry Fragmentation - Distribution Channel Development - Customer Support Development Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Wireless Data Penetration Analysis Bar chart illustrating penetration forecast for notebook computers and personal intelligent communicators Penetration Analysis - Baseline Scenario (000'2) 1995 1996 1997 1998 1999 2000 Reference Notebook Computers 13,000 15,900 19,210 22,899 27,000 31,300 Personal Intelligent Communicators 700 1,300 2,200 3,600 5,400 7,401 Installed Base Penetration Notebook Computers 0.53% 2.5% 5.0% 7.5% 10.0% 12.0% Personal Intelligent Communicators 0.44% 5.6% 9.8% 12.0% 13.3% 15.5% - ------------------ Source: BIS, IDC, McCaw Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Cellular Data Services Packet and Circuit Switching will be Complementary Services VAS PSTN FAX PSTN Bulletin Board Airdata VAS Cellular ONE VAS Van Enterprise Fax Modem Pool Modem Enterprise Pool AirData CellularONE Packet Switched System Circuit Switched System Pro: Con: Pro: Con: - - Virtual Connection - Lack of Availability - Available - Per Minute Pricing - - Reliable Connection - No Dial-Out Service - PSTN Paradigm - Roaming Charges - - Usage Based Pricing - No MIS Support - Performance Required Reliability - ------------------ Source: McCaw Cellular Wireless Data Division Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Summary Analysis of LIN at Various Prices Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN at Various Prices (in millions, except per share and per POP values) Private Market Price $105.00 $110.00 $120.00 $127.50 $130.00 $140.00 $150.00 $155.00 Premium to Market (1) (18.6%) (14.7%) (7.0%) (1.2%) 0.8% 8.5% 16.3% 20.2% No. of Shares Outstanding (2) 53.292 53.292 53.292 53.292 53.292 53.292 53.292 53.292 Equity Value $5,596 $5,862 $6,395 $6,795 $6,928 $7,461 $7,994 $8,260 Plus: Net Debt (3 $1,560 $1,560 $1,560 $1,560 $1,560 $1,560 $1,560 $1,560 Less: Option Proceeds (2) ($142) ($142) ($142) ($142) ($142) ($142) ($142) ($142) Enterprise Value $7,014 $7,280 $7,813 $8,213 $8,346 $8,879 $9,412 $9,820 Less: Non-Cellular Assets (4) ($118) ($118) ($118) ($118) ($118) ($118) ($118) ($118) Cellular Enterprise Value $6,896 $7,162 $7,695 $8,095 $8,228 $8,761 $9,294 $9,702 Cellular Enterprise Value as a Multiple of: LIN Management Base Case 1994 Cellular EBITDA $390 17.7x 18.4x 19.7x 20.8x 21.1x 22.5x 23.8x 24.9x 1995E Cellular EBITDA $535 12.9 13.4 14.4 15.1 15.4 16.4 17.4 18.1 1996E Cellular EBITDA $674 10.2 10.6 11.4 12.0 12.2 13.0 13.8 14.4 McCaw Projections w/o AT&T Synergies 1995E Cellular EBITDA $518 13.3x 13.8x 14.9x 15.6x 15.9x 16.9x 17.9x 18.7x 1996E Cellular EBITDA $638 10.8 11.2 12.1 12.7 12.9 13.7 14.6 15.2 Value per POP (12/31/94) 25.72 $268 $278 $299 $315 $320 $341 $361 $377 Value per POP (6/30/95E) 25.85 $267 $277 $298 $313 $318 $339 $360 $375 (1) Based on 3/3/95 closing price of $129.00. (2) Based on 51.632 million primary shares outstanding as of 12/31/94, 1.660 million outstanding options exerciseable at an average exercise price of $85.46 as of 1/31/95 per LIN management. (3) As of 12/31/94 per LIN management. (4) $88.379 million based on 9.5x 1995E WOOD-TV and WOTV-TV EBITDA of $9.303million, and $29.80 million for 1.656 million shares of American Mobile Satellite, based on $18.00 a share as of 3/3/95. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- LIN Share Price at Various EBITDA Multiples EBITDA Multiples EBITDA Estimates ($MM) 10.0 x 11.0 x 12.0x 13.0x 14.0x 15.0x 16.0x 17.0x 18.0x 19.0x 20.0x 1994 Actual EBITDA $390 $49 $56 $63 $71 $78 $85 $93 $100 $107 $115 $122 LIN Management Base Case LTM 6/30/95 Cellular EBITDA $472 $64 $73 $82 $91 $100 $108 $117 $126 $135 $144 $153 1995E Cellular EBITDA $535 $76 $86 $96 $106 $116 $126 $136 $146 $156 $166 $176 LTM 6/30/96 Cellular EBITDA $604 $89 $100 $112 $123 $134 $146 $157 $168 $180 $191 $202 1996E Cellular EBITDA $674 $102 $115 $127 $140 $153 $165 $178 $191 $203 $216 $229 McCaw Projections w/o ATT Synergies LTM 6/30/95 Cellular EBITDA $464 $63 $71 $80 $89 $97 $106 $115 $124 $132 $141 $150 1995E Cellular EBITDA $518 $73 $83 $92 $102 $112 $121 $131 $141 $151 $160 $170 LTM 6/30/96 Cellular EBITDA $578 $84 $95 $106 $117 $128 $138 $149 $160 $171 $182 $193 1996E Cellular EBITDA $638 $95 $107 $119 $131 $143 $155 $167 $179 $191 $203 $215 (1) Calculations add back non-cellular assets worth $118MM to the cellular enterprise value, subtract net debt of $1,560MM, add option proceeds of $142MM based on 1.6MM options outstanding and an average exercise price of $85.458, and divide by the fully diluted shares outstanding of 53.3MM. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- General Valuation Considerations Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- General Valuation Considerations - -- In arriving at the Mutually Appraised Amount, WP&Co.: - Applied the Private Market Value Guarantee as interpreted by Paul Weiss - Assumed sale of the company with a closing at 6/30/95 - Considered the feasibility of various transactions in the current marketplace, taking into account regulatory, legal, and tax issues - -- As well as performing valuation analysis, WP&Co. considered extensive materials and arguments provided by Bear Stearns/Lehman and Morgan Stanley - -- Qualitative factors examined in the context of our analysis include (but are in no way limited to) the following: - Wireless communication and demographic trends on the whole and in LIN's markets - LIN's historical financial and operating performance and future prospects in the context of its business strategy, market position and current and prospective competition - LIN's technological, marketing and product strategy (including new services and its entry into the wireless data business) - LIN management projections, McCaw management projections, and a sensitivity case - LIN's shared control (with BellSouth) of the LA and Houston markets - Evaluation of potential acquirors for all or part of LIN and their potential perspectives on value and regulatory restrictions on ownership of parts of LIN - Evaluation of the breadth and depth of potential acquisition universe for LIN (in a manner consistent with the legal interpretation of the Private Market Value Guarantee) - Evaluation of the feasibility of various potential value-maximizing transaction structures, having regard to regulatory, legal and taxation considerations - Regulatory restrictions on AT&T with respect to its ability to receive equity consideration from potential buyers of all or part of LIN - Potential public market trading value of LIN as a standalone entity - Wall Street analyst commentary, research and valuation estimates Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Discounted Cash Flow Analysis Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Assumptions Common to LIN Management and McCaw Management Projections - -- Continued growth in penetration and revenue over 10-year forecast period - -- As penetration increases, revenue/subscriber/month declines in both real and nominal terms - -- Margins continue to hold at high levels - -- No major replacement capital modeled for out years - -- Marketing expense per gross addition will rise in 1997 and 1998 when competition increases (e.g. PCS entry) - -- Cash flow margin before marketing and direct expense per subscriber per month are very similar throughout period - -- Churn is expected to decline over the period despite expected increased competition Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Major Areas of Difference between LIN Management and McCaw Cases - -- McCaw's Steve Hooper attempted to strip out AT&T synergies from LIN Management Base Case in arriving at McCaw Management numbers - LIN Management stated that it did not incorporate meaningful AT&T synergies in its base case - -- McCaw assumes lower penetration by LIN (14.5% vs. 16.9% in year 2004) - -- McCaw revenue/subscriber/month is lower in later years of model approximately ($49 vs. approximately $52 in Management Case) - -- McCaw marketing costs per gross addition are higher throughout period but especially so in last five years of period - -- Wireless data expectations are more modest (approximately one-half the cash flow in year 2004) Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Sensitivity Case Assumptions - -- WP&Co. analyzed a Sensitivity Case following its due diligence with LIN and McCaw Management - -- Sensitivity Case uses McCaw marketing cost assumptions for cellular business and adopts LIN Management revenue and penetration growth rates - Higher marketing costs may well be necessary to support robust revenue growth as the wireless market approaches maturity - -- Wireless data assumptions give equal weight to LIN Management's views and McCaw Management views in an embryonic period of the industry Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Summary of Bear Stearns/ Lehman Brothers and Morgan Stanley DCF Valuations Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Summary Comparison of Discounted Cash Flow Analysis of Bear Stearns/Lehman Brothers and Morgan Stanley Bear Stearns / Lehman Brothers Morgan Stanley LIN Management Base LIN Management Base Case Including Wireless Case Not Including Data, Long Distance and Wireless Data, Long Distance Additional Products and Additional Products Discount Exit Multiples Discount Exit Multiples Rate 10.5x 11.5x 12.5x Rate 9.5x 10.0x 10.5x 11.0% Value per Share $168 $181 $194 13.0% Value per Share $102 $106 $110 Implied Perpetuity Implied Perpetuity Growth 5.3% 5.8% 6.2% Growth 5.9% 6.2% 6.5% Multiple of 1995E Multiple of 1995E EBITDA 19.2x 20.5x 21.8x EBITDA 12.9x 13.4x 13.8x 12.0% Value per Share $154 $166 $178 13.5% Value per Share $98 $102 $106 Implied Perpetuity Implied Perpetuity Growth 6.3% 6.8% 7.2% Growth 6.3% 6.7% 7.0% Multiple of 1995E Multiple of 1995E EBITDA 17.8x 19.0x 20.2x EBITDA 12.5x 12.9x 13.3x 13.0% Value per Share $141 $152 $163 14.0% Value per Share $93 $97 $101 Implied Perpetuity Implied Perpetuity Growth 7.3% 7.8% 8.2% Growth 6.8% 7.1% 7.4% Multiple of 1995E Multiple of 1995E EBITDA 16.5x 17.6x 18.7x EBITDA 12.1x 12.5x 12.8x Morgan Stanley assigns $5-$6 of value per share for Wireless Data and $3 value per share for Additional Services Morgan Stanley stated that LIN Management Case did not reflect Morgan Stanley's view of DCF valuation. Rather, Morgan Stanley applied its own valuation parameters to LIN Management Case for illustrative purposes Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN Management Case Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPS 25,722 25,980 26,240 26,502 26,767 27,034 27,304 27,578 27,854 28,133 28,414 % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning Subscribers 771.302 1,092.076 1,587.399 2,070.865 2,481.767 2,886.521 3,284.306 3,666.878 4,024.885 4,352.573 4,610.246 Gross Subscribers Added 557.510 744.662 822.650 805.766 855.424 899.623 934.151 947.786 944.519 968.685 881.533 Deactiva- tions (236.737) (249.339) (339.184) (394.864) (450.669) (501.838) (551.579) (589.779) (616.831) (711.013) (689.666) Annual % Churn (25.41%) (18.61%) (18.54%) (17.35%) (16.79%) (16.26%) (15.87%) (15.34%) (14.73%) (15.87%) (14.65%) Monthly % Churn (2.12%) (1.55%) (1.55%) (1.45%) (1.40%) (1.36%) (1.32%) (1.28%) (1.23%) (1.32%) (1.22%) Net Subscribers Added 320.774 495.322 483.466 410.902 404.754 397.785 382.573 358.007 327.688 257.673 191.867 Ending Sub- cribers 1,092.076 1,587.399 2,070.865 2,481.767 2,886.521 3,284.306 3,666.878 4,024.885 4,352.573 4,610.246 4,802.113 Average Sub- cribers 931.689 1,339.737 1,829.132 2,276.316 2,684.144 3,085.413 3,475.592 3,845.882 4,188.729 4,481.410 4,706.180 Total Penetration 4.25% 6.11% 7.89% 9.36% 10.78% 12.15% 13.43% 14.59% 15.63% 16.39% 16.90% % Penetration Growth NA 43.9% 29.2% 18.7% 15.2% 12.7% 10.5% 8.7% 7.1% 4.9% 3.1% Annual Pene- tration (1) 1.25% 1.91% 1.84% 1.55% 1.51% 1.47% 1.40% 1.30% 1.18% 0.92% 0.68% % Growth NA 52.9% (3.4%) (15.9%) (2.5%) (2.7%) (4.8%) (7.3%) (9.4%) (22.1%) (26.3%) (1) Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (cont'd) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $82.60 $73.09 $66.84 $62.53 $60.13 $57.29 $55.83 $55.17 $54.94 $54.75 $54.15 % Growth NA (11.5%) (8.6%) (6.4%) (3.8%) (4.7%) (2.6%) (1.2%) (0.4%) (0.3%) (1.1%) Total Revenues $923,546 $1,175,108 $1,467,136 $1,708,154 $1,936,835 $2,121,322 $2,328,346 $2,546,174 $2,761,366 $2,944,454 $3,057,837 % Growth NA 27.2% 24.9% 16.4% 13.4% 9.5% 9.8% 9.4% 8.5% 6.6% 3.9% Direct Operating Expenses $279,817 $339,134 $461,244 $559,882 $665,940 $750,474 $858,201 $975,525 $1,096,295 $1,193,546 $1,261,177 % of Revenues 30.3% 28.9% 31.4% 32.8% 34.4% 35.4% 36.9% 38.3% 39.7% 40.5% 41.2% Cash Flow Before Marketing $643,729 $835,974 $1,005,891 $1,148,272 $1,270,895 $1,370,848 $1,470,145 $1,570,650 $1,665,070 $1,750,908 $1,796,660 Margin 69.7% 71.1% 68.6% 67.2% 65.6% 64.6% 63.1% 61.7% 60.3% 59.5% 58.8% Sales & Marketing $249,855 $291,999 $325,330 $353,397 $366,809 $371,665 $358,705 $333,537 $295,195 $266,198 $246,266 % of Revenues 27.1% 24.8% 22.2% 20.7% 18.9% 17.5% 15.4% 13.1% 10.7% 9.0% 8.1% Sales & Marketing / Gross Addition $448 $392 $395 $439 $429 $413 $384 $352 $313 $275 $279 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $529,672 $631,133 $786,574 $913,279 $1,032,748 $1,122,138 $1,216,906 $1,309,061 $1,391,491 $1,459,744 $1,507,443 Operating Cash Flow (OCF) $393,873 $543,976 $680,561 $794,875 $904,086 $999,183 $1,111,440 $1,237,113 $1,369,875 $1,484,710 $1,550,394 Margin 42.6% 46.3% 46.4% 46.5% 46.7% 47.1% 47.7% 48.6% 49.6% 50.4% 50.7% Depreciation & Amortiz- ation $128,184 $188,818 $238,986 $260,674 $261,625 $248,446 $227,060 $202,078 $175,851 $152,833 $130,473 % of Revenues 13.9% 16.1% 16.3% 15.3% 13.5% 11.7% 9.8% 7.9% 6.4% 5.2% 4.3% EBIT $265,689 $355,157 $441,575 $534,201 $642,461 $750,737 $884,380 $1,035,035 $1,194,024 $1,331,877 $1,419,920 Margin 28.8% 30.2% 30.1% 31.3% 33.2% 35.4% 38.0% 40.7% 43.2% 45.2% 46.4% Taxes $97,012 $129,116 $160,463 $194,295 $233,716 $273,434 $322,519 $377,675 $435,945 $486,770 $519,785 Effective Tax Rate 36.5% 36.4% 36.3% 36.4% 36.4% 36.4% 36.5% 36.5% 36.5% 36.5% 36.6% Unlevered Net Income $168,677 $226,042 $281,112 $339,906 $408,745 $477,303 $561,861 $657,360 $758,079 $845,107 $900,136 Net Margin 18.3% 19.2% 19.2% 19.9% 21.1% 22.5% 24.1% 25.8% 27.5% 28.7% 29.4% Free Cash Flow Unlevered Net Income $168,677 $226,042 $281,112 $339,906 $408,745 $477,303 $561,861 $657,360 $758,079 $845,107 $900,136 Depreciation & Amortiz- ation $128,184 $188,818 $238,986 $260,674 $261,625 $248,446 $227,060 $202,078 $175,851 $152,833 $130,473 Capital Expendi- tures ($190,343) ($301,124) ($294,122) ($279,903) ($202,317) ($186,996) ($169,646) ($142,256) ($130,292) ($102,451) ($76,298) Change in Working Capital $0 ($25,156) ($29,203) ($24,102) ($22,868) ($18,449) ($20,702) ($21,783) ($21,519) ($18,309) ($11,338) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $106,518 $88,580 $196,773 $296,575 $445,186 $520,305 $598,573 $695,400 $782,119 $877,181 $942,973 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (cont'd) (1) (in thousands, except per share and per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $2,831,829 $2,831,829 $2,831,829 $2,831,829 $2,831,829 $2,831,829 Terminal Value $5,198,360 $6,123,068 $6,711,519 $7,417,660 $8,280,721 $9,359,547 Enterprise Value $8,030,190 $8,954,898 $9,543,349 $10,249,489 $11,112,551 $12,191,377 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $6,611,999 $7,536,707 $8,125,158 $8,831,299 $9,694,360 $10,773,186 Value per Share (3) $124.07 $141.42 $152.46 $165.72 $181.91 $202.15 Enterprise Value / POP $310.63 $346.40 $369.16 $396.48 $429.87 $471.60 Implied Exit Multiple of EBITDA 9.0x 10.6x 11.7x 12.9x 14.4x 16.3x 12.0% Present Value of Cash Flows $2,687,344 $2,687,344 $2,687,344 $2,687,344 $2,687,344 $2,687,344 Terminal Value $4,177,068 $4,819,693 $5,215,155 $5,676,528 $6,221,786 $6,876,096 Enterprise Value $6,864,412 $7,507,038 $7,902,500 $8,363,872 $8,909,130 $9,563,440 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $5,446,221 $6,088,847 $6,484,309 $6,945,682 $7,490,940 $8,145,250 Value per Share (3) $102.20 $114.25 $121.68 $130.33 $140.56 $152.84 Enterprise Value / POP $265.54 $290.39 $305.69 $323.54 $344.63 $369.94 Implied Exit Multiple of EBITDA 7.9x 9.1x 9.9x 10.7x 11.8x 13.0x 13.0% Present Value of Cash Flows $2,552,684 $2,552,684 $2,552,684 $2,552,684 $2,552,684 $2,552,684 Terminal Value $3,412,283 $3,875,730 $4,153,798 $4,471,590 $4,838,273 $5,266,071 Enterprise Value $5,964,966 $6,428,414 $6,706,482 $7,024,274 $7,390,957 $7,818,755 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $4,546,776 $5,010,223 $5,288,291 $5,606,083 $5,972,767 $6,400,564 Value per Share (3) $85.32 $94.01 $99.23 $105.20 $112.08 $120.10 Enterprise Value / POP $230.74 $248.67 $259.43 $271.72 $285.90 $302.45 Implied Exit Multiple of EBITDA 7.0x 8.0x 8.6x 9.2x 10.0x 10.8x 14.0% Present Value of Cash Flows $2,427,056 $2,427,056 $2,427,056 $2,427,056 $2,427,056 $2,427,056 Terminal Value $2,824,468 $3,168,473 $3,370,830 $3,598,480 $3,856,485 $4,151,347 Enterprise Value $5,251,524 $5,595,529 $5,797,886 $6,025,537 $6,283,541 $6,578,403 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $3,833,333 $4,177,339 $4,379,695 $4,607,346 $4,865,350 $5,160,212 Value per Share (3) $71.93 $78.39 $82.18 $86.45 $91.30 $96.83 Enterprise Value / POP $203.14 $216.45 $224.28 $233.09 $243.07 $254.47 Implied Exit Multiple of EBITDA 6.3x 7.1x 7.5x 8.1x 8.6x 9.3x (1) Present values as of 6/30/95. Enterprise value per POP based on 6/30/95 estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Based on 12/31/94 net debt of $1,560 million, less option proceeds of $142 million, based on 1,659,986 options outstanding as of 1/31/95 at an average exercise price of $85.46 per LIN mgmt. (3) Based on fully diluted shares including 51,632,000 shares outstanding as of 12/31/94, plus 1,659,986 options outstanding as of 1/31/95 per LIN management. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (in thousands, except per share and per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Cellular Enterprise Value $8,030,190 $8,954,898 $9,543,349 $10,249,489 $11,112,551 $12,191,377 As a Multiple of (1): 1994 Cellular EBITDA $393,873 20.4x 22.7x 24.2x 26.0x 28.2x 31.0x 1995E Cellular EBITDA $543,976 14.8 16.5 17.5 18.8 20.4 22.4 1996E Cellular EBITDA $680,561 11.8 13.2 14.0 15.1 16.3 17.9 Value per Share (2) $124.07 $141.42 $152.46 $165.72 $181.91 $202.15 12.0% Cellular Enterprise Value $6,864,412 $7,507,038 $7,902,500 $8,363,872 $8,909,130 $9,563,440 As a Multiple of (1): 1994 Cellular EBITDA $393,873 17.4x 19.1x 20.1x 21.2x 22.6x 24.3x 1995E Cellular EBITDA $543,976 12.6 13.8 14.5 15.4 16.4 17.6 1996E Cellular EBITDA $680,561 10.1 11.0 11.6 12.3 13.1 14.1 Value per Share (2) $102.20 $114.25 $121.68 $130.33 $140.56 $152.84 13.0% Cellular Enterprise Value $5,964,966 $6,428,414 $6,706,482 $7,024,274 $7,390,957 $7,818,755 As a Multiple of (1): 1994 Cellular EBITDA $393,873 15.1x 16.3x 17.0x 17.8x 18.8x 19.9x 1995E Cellular EBITDA $543,976 11.0 11.8 12.3 12.9 13.6 14.4 1996E Cellular EBITDA $680,561 8.8 9.4 9.9 10.3 10.9 11.5 Value per Share (2) $85.32 $94.01 $99.23 $105.20 $112.08 $120.10 14.0% Cellular Enterprise Value $5,251,524 $5,595,529 $5,797,886 $6,025,537 $6,283,541 $6,578,403 As a Multiple of (1): 1994 Cellular EBITDA $393,873 13.3x 14.2x 14.7x 15.3x 16.0x 16.7x 1995E Cellular EBITDA $543,976 9.7 10.3 10.7 11.1 11.6 12.1 1996E Cellular EBITDA $680,561 7.7 8.2 8.5 8.9 9.2 9.7 Value per Share (2) $71.93 $78.39 $82.18 $86.45 $91.30 $96.83 (1) EBITDA figures based on discounted cash flow analysis. (2) Values per share based on discounted cash flow analysis. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Segment Values per Share Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% New York $82.60 $92.20 $98.32 $105.65 $114.61 $125.82 Los Angeles $34.18 $37.97 $40.39 $43.28 $46.82 $51.25 Dallas $14.41 $16.05 $17.09 $18.35 $19.88 $21.79 Houston $11.24 $12.49 $13.28 $14.23 $15.39 $16.85 Galveston $0.33 $0.37 $0.40 $0.43 $0.47 $0.52 Litchfield $0.56 $0.63 $0.68 $0.73 $0.80 $0.88 Newton $1.03 $1.16 $1.24 $1.34 $1.46 $1.61 Long Distance $2.60 $2.87 $3.04 $3.25 $3.50 $3.82 Additional Products $3.73 $4.28 $4.63 $5.06 $5.57 $6.22 SubTotal $150.68 $168.03 $179.08 $192.33 $208.52 $228.77 Less: Value of debt ($26.61) ($26.61) ($26.61) ($26.61) ($26.61) ($26.61) Value per Share $124.07 $141.42 $152.46 $165.72 $181.91 $202.15 12.0% New York $70.52 $77.19 $81.30 $86.09 $91.76 $98.55 Los Angeles $29.35 $31.99 $33.61 $35.50 $37.74 $40.42 Dallas $12.33 $13.47 $14.17 $14.99 $15.96 $17.12 Houston $9.66 $10.53 $11.06 $11.68 $12.41 $13.30 Galveston $0.28 $0.31 $0.33 $0.35 $0.37 $0.40 Litchfield $0.48 $0.52 $0.56 $0.59 $0.63 $0.68 Newton $0.87 $0.96 $1.02 $1.08 $1.16 $1.25 Long Distance $2.25 $2.44 $2.55 $2.69 $2.85 $3.04 Additional Products $3.07 $3.46 $3.69 $3.97 $4.30 $4.69 SubTotal $128.81 $140.87 $148.29 $156.94 $167.18 $179.45 Less: Value of debt ($26.61) ($26.61) ($26.61) ($26.61) ($26.61) ($26.61) Value per Share $102.20 $114.25 $121.68 $130.33 $140.56 $152.84 13.0% New York $61.20 $66.01 $68.90 $72.20 $76.01 $80.46 Los Angeles $25.62 $27.52 $28.66 $29.96 $31.47 $33.22 Dallas $10.73 $11.55 $12.05 $12.61 $13.26 $14.02 Houston $8.44 $9.06 $9.44 $9.86 $10.36 $10.93 Galveston $0.24 $0.26 $0.27 $0.29 $0.30 $0.32 Litchfield $0.41 $0.44 $0.46 $0.49 $0.52 $0.55 Newton $0.75 $0.81 $0.85 $0.90 $0.95 $1.01 Long Distance $1.98 $2.11 $2.19 $2.29 $2.40 $2.52 Additional Products $2.57 $2.85 $3.02 $3.21 $3.43 $3.68 SubTotal $111.93 $120.63 $125.84 $131.81 $138.69 $146.72 Less: Value of debt ($26.61) ($26.61) ($26.61) ($26.61) ($26.61) ($26.61) Value per Share $85.32 $94.01 $99.23 $105.20 $112.08 $120.10 14.0% New York $53.82 $57.39 $59.49 $61.85 $64.53 $67.60 Los Angeles $22.65 $24.06 $24.89 $25.82 $26.88 $28.09 Dallas $9.46 $10.07 $10.43 $10.83 $11.29 $11.81 Houston $7.47 $7.93 $8.20 $8.51 $8.86 $9.25 Galveston $0.21 $0.22 $0.23 $0.24 $0.25 $0.27 Litchfield $0.35 $0.38 $0.40 $0.41 $0.43 $0.45 Newton $0.65 $0.70 $0.73 $0.76 $0.80 $0.84 Long Distance $1.76 $1.86 $1.92 $1.99 $2.06 $2.15 Additional Products $2.18 $2.39 $2.51 $2.65 $2.80 $2.98 SubTotal $98.54 $105.00 $108.79 $113.07 $117.91 $123.44 Less: Value of debt ($26.61) ($26.61) ($26.61) ($26.61) ($26.61) ($26.61) Value per Share $71.93 $78.39 $82.18 $86.45 $91.30 $96.83 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- LIN Wireless Data Operating Model (in thousands) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Total Revenues $0 $2,250 $9,000 $23,750 $44,500 $73,500 $106,500 $138,450 $179,985 $233,981 $304,175 % Growth NA NM 300.0% 163.9% 87.4% 65.2% 44.9% 30.0% 30.0% 30.0% 30.0% Direct Operating Expenses $0 $4,225 $7,000 $11,000 $17,000 $20,000 $22,750 $29,575 $38,448 $49,982 $64,976 % of Revenues NA 187.8% 77.8% 46.3% 38.2% 27.2% 21.4% 21.4% 21.4% 21.4% 21.4% Cash Flow Before Marketing $0 ($1,975) $2,000 $12,750 $27,500 $53,500 $83,750 $108,875 $141,537 $183,999 $239,199 Margin NA (87.8%) 22.2% 53.7% 61.8% 72.8% 78.6% 78.6% 78.6% 78.6% 78.6% Sales & Marketing $0 $2,750 $5,250 $9,500 $15,500 $22,000 $32,000 $41,600 $54,080 $70,304 $91,395 % of Revenues NA 122.2% 58.3% 40.0% 34.8% 29.9% 30.0% 30.0% 30.0% 30.0% 30.0% Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $0 $6,975 $12,250 $20,500 $32,500 $42,000 $54,750 $71,175 $92,528 $120,286 $156,371 Operating Cash Flow (OCF) $0 ($4,725) ($3,250) $3,250 $12,000 $31,500 $51,750 $67,275 $87,457 $113,695 $147,804 Margin NA (210.0%) (36.1%) 13.7% 27.0% 42.9% 48.6% 48.6% 48.6% 48.6% 48.6% Depreciation & Amortization $0 $10,600 $11,160 $8,696 $9,197 $10,149 $8,416 $6,666 $6,330 $6,071 $5,524 % of Revenues NA 471.1% 124.0% 36.6% 20.7% 13.8% 7.9% 4.8% 3.5% 2.6% 1.8% EBIT $0 ($15,325) ($14,410) ($5,446) $2,803 $21,351 $43,334 $60,609 $81,127 $107,624 $142,280 Margin NA (681.1%) (160.1%) (22.9%) 6.3% 29.0% 40.7% 43.8% 45.1% 46.0% 46.8% Taxes $0 ($5,824) ($5,476) ($2,069) $1,065 $8,113 $16,467 $23,031 $30,828 $40,897 $54,066 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $0 ($9,502) ($8,934) ($3,377) $1,738 $13,238 $26,867 $37,578 $50,299 $66,727 $88,214 Net Margin NA (422.3%) (99.3%) (14.2%) 3.9% 18.0% 25.2% 27.1% 27.9% 28.5% 29.0% Free Cash Flow Unlevered Net Income $0 ($9,502) ($8,934) ($3,377) $1,738 $13,238 $26,867 $37,578 $50,299 $66,727 $88,214 Depreciation & Amortization $0 $10,600 $11,160 $8,696 $9,197 $10,149 $8,416 $6,666 $6,330 $6,071 $5,524 Capital Expenditures $0 ($19,000) ($5,000) ($5,000) ($10,000) ($10,000) ($5,250) ($5,250) ($5,250) ($5,250) ($5,250) Change in Working Capital $0 ($225) ($675) ($1,475) ($2,075) ($2,900) ($3,300) ($3,195) ($4,154) ($5,400) ($7,019) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $0 ($18,127) ($3,449) ($1,156) ($1,140) $10,487 $26,733 $35,799 $47,225 $62,148 $81,468 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- LIN : Wireless Data (1) (in thousands, except per share values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 6.0% 8.0% 10.0% 12.0% 14.0% 18.0% Present Value of Cash Flows $61,284 $61,284 $61,284 $61,284 $61,284 Terminal Value $149,360 $182,613 $232,494 $315,628 $481,897 Enterprise Value $210,644 $243,897 $293,778 $376,912 $543,181 Net Debt $0 $0 $0 $0 $0 Equity Value $210,644 $243,897 $293,778 $376,912 $543,181 Value per Share $3.95 $4.58 $5.51 $7.07 $10.19 Implied Exit Multiple of EBITDA 4.9x 6.0x 7.6x 10.3x 15.7x 19.0% Present Value of Cash Flows $56,869 $56,869 $56,869 $56,869 $56,869 Terminal Value $127,249 $153,223 $190,740 $249,696 $355,817 Enterprise Value $184,118 $210,092 $247,609 $306,566 $412,686 Net Debt $0 $0 $0 $0 $0 Equity Value $184,118 $210,092 $247,609 $306,566 $412,686 Value per Share $3.45 $3.94 $4.65 $5.75 $7.74 Implied Exit Multiple of EBITDA 4.5x 5.4x 6.7x 8.8x 12.6x #### Present Value of Cash Flows $52,775 $52,775 $52,775 $52,775 $52,775 Terminal Value $109,130 $129,721 $158,547 $201,788 $273,855 Enterprise Value $161,905 $182,496 $211,322 $254,563 $326,630 Net Debt $0 $0 $0 $0 $0 Equity Value $161,905 $182,496 $211,322 $254,563 $326,630 Value per Share $3.04 $3.42 $3.97 $4.78 $6.13 Implied Exit Multiple of EBITDA 4.2x 5.0x 6.1x 7.7x 10.5x 21.0% Present Value of Cash Flows $48,975 $48,975 $48,975 $48,975 $48,975 Terminal Value $94,133 $110,664 $133,207 $165,769 $216,937 Enterprise Value $143,108 $159,639 $182,182 $214,744 $265,912 Net Debt $0 $0 $0 $0 $0 Equity Value $143,108 $159,639 $182,182 $214,744 $265,912 Value per Share $2.69 $3.00 $3.42 $4.03 $4.99 Implied Exit Multiple of EBITDA 3.9x 4.6x 5.5x 6.9x 9.0x (1) Present values as of 6/30/95. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- LIN Television Stations: WOOD-TV and WOTV-TV (in thousands) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Total Revenues $21,795 $22,909 $24,100 $25,022 $26,320 $26,957 $28,112 $28,794 $30,031 $30,761 $32,068 % Growth NA 5.1% 5.2% 3.8% 5.2% 2.4% 4.3% 2.4% 4.3% 2.4% 4.2% Direct Operating Expenses $7,296 $7,128 $7,471 $7,739 $8,113 $8,298 $8,628 $8,825 $9,181 $9,387 $9,720 % of Revenues 33.5% 31.1% 31.0% 30.9% 30.8% 30.8% 30.7% 30.6% 30.6% 30.5% 30.3% SG&A and Promotion Expenses $6,197 $6,478 $6,772 $7,003 $7,324 $7,487 $7,773 $7,945 $8,249 $8,432 $8,807 % of Revenues 28.4% 28.3% 28.1% 28.0% 27.8% 27.8% 27.7% 27.6% 27.5% 27.4% 27.5% Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $13,493 $13,606 $14,243 $14,742 $15,437 $15,785 $16,401 $16,770 $17,430 $17,819 $18,527 Operating Cash Flow (OCF) $8,302 $9,303 $9,857 $10,280 $10,883 $11,172 $11,711 $12,024 $12,601 $12,942 $13,541 Margin 38.1% 40.6% 40.9% 41.1% 41.3% 41.4% 41.7% 41.8% 42.0% 42.1% 42.2% Depreciation & Amortization $1,265 $1,599 $1,802 $2,010 $2,221 $2,437 $1,391 $1,282 $1,307 $1,334 $1,356 % of Revenues 5.8% 7.0% 7.5% 8.0% 8.4% 9.0% 4.9% 4.5% 4.4% 4.3% 4.2% EBIT $7,037 $7,704 $8,055 $8,271 $8,662 $8,736 $10,320 $10,742 $11,294 $11,609 $12,185 Margin 32.3% 33.6% 33.4% 33.1% 32.9% 32.4% 36.7% 37.3% 37.6% 37.7% 38.0% Taxes $2,674 $2,928 $3,061 $3,143 $3,292 $3,319 $3,922 $4,082 $4,292 $4,411 $4,630 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $4,363 $4,776 $4,994 $5,128 $5,371 $5,416 $6,398 $6,660 $7,002 $7,197 $7,555 Net Margin 20.0% 20.8% 20.7% 20.5% 20.4% 20.1% 22.8% 23.1% 23.3% 23.4% 23.6% Free Cash Flow Unlevered Net Income $4,363 $4,776 $4,994 $5,128 $5,371 $5,416 $6,398 $6,660 $7,002 $7,197 $7,555 Depreciation & Amortization $1,265 $1,599 $1,802 $2,010 $2,221 $2,437 $1,391 $1,282 $1,307 $1,334 $1,356 Capital Expenditures ($843) ($2,003) ($1,219) ($1,244) ($1,268) ($1,294) ($1,319) ($1,346) ($1,373) ($1,401) ($1,401) Change in Working Capital $0 ($111) ($119) ($92) ($130) ($64) ($116) ($68) ($124) ($73) ($131) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $4,785 $4,261 $5,458 $5,801 $6,194 $6,495 $6,355 $6,528 $6,813 $7,057 $7,379 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- LIN Television Stations: WOOD-TV and WOTV-TV (cont'd)(1) (in thousands, except per share values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $35,169 $35,169 $35,169 $35,169 $35,169 $35,169 Terminal Value $40,678 $47,914 $52,518 $58,044 $64,798 $73,240 Enterprise Value $75,846 $83,082 $87,687 $93,213 $99,966 $108,408 Less: Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $75,846 $83,082 $87,687 $93,213 $99,966 $108,408 Value per Share (3) $1.42 $1.56 $1.65 $1.75 $1.88 $2.03 Implied Exit Multiple of EBITDA 8.1x 9.5x 10.5x 11.6x 12.9x 14.6x 12.0% Present Value of Cash Flows $33,705 $33,705 $33,705 $33,705 $33,705 $33,705 Terminal Value $32,686 $37,715 $40,809 $44,419 $48,686 $53,806 Enterprise Value $66,391 $71,420 $74,514 $78,125 $82,391 $87,511 Less: Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $66,391 $71,420 $74,514 $78,125 $82,391 $87,511 Value per Share (3) $1.25 $1.34 $1.40 $1.47 $1.55 $1.64 Implied Exit Multiple of EBITDA 7.1x 8.2x 8.8x 9.6x 10.6x 11.7x 13.0% Present Value of Cash Flows $32,333 $32,333 $32,333 $32,333 $32,333 $32,333 Terminal Value $26,702 $30,328 $32,504 $34,991 $37,860 $41,208 Enterprise Value $59,035 $62,661 $64,837 $67,324 $70,193 $73,541 Less: Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $59,035 $62,661 $64,837 $67,324 $70,193 $73,541 Value per Share (3) $1.11 $1.18 $1.22 $1.26 $1.32 $1.38 Implied Exit Multiple of EBITDA 6.3x 7.2x 7.7x 8.3x 8.9x 9.7x 14.0% Present Value of Cash Flows $31,046 $31,046 $31,046 $31,046 $31,046 $31,046 Terminal Value $22,102 $24,794 $26,377 $28,159 $30,177 $32,485 Enterprise Value $53,148 $55,840 $57,423 $59,204 $61,223 $63,531 Less: Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $53,148 $55,840 $57,423 $59,204 $61,223 $63,531 Value per Share (3) $1.00 $1.05 $1.08 $1.11 $1.15 $1.19 Implied Exit Multiple of EBITDA 5.7x 6.4x 6.8x 7.2x 7.7x 8.3x (1) Present values as of 6/30/95. (2) Segment net debt is assumed to be $0, and is consolidated with the parent debt. (3) Based on fully diluted shares including 51,632,000 shares outstanding as of 12/31/94, plus 1,659,986 options outstanding as of 1/31/95 per LIN management. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- LIN Television Stations: WOOD-TV and TOTV-TV (cont'd) (in thousands, except per share values Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Television Enterprise Value $75,846 $83,082 $87,687 $93,213 $99,966 $108,408 As a Multiple of (1): 1994 Segment EBITDA $8,302 9.1x 10.0x 10.6x 11.2x 12.0x 13.1x 1995E Segment EBITDA $9,303 8.2 8.9 9.4 10.0 10.7 11.7 1996E Segment EBITDA $9,857 7.7 8.4 8.9 9.5 10.1 11.0 Value per Share (2) $1.42 $1.56 $1.65 $1.75 $1.88 $2.03 12.0% Television Enterprise Value $66,391 $71,420 $74,514 $78,125 $82,391 $87,511 As a Multiple of (1): 1994 Segment EBITDA $8,302 8.0x 8.6x 9.0x 9.4x 9.9x 10.5x 1995E Segment EBITDA $9,303 7.1 7.7 8.0 8.4 8.9 9.4 1996E Segment EBITDA $9,857 6.7 7.2 7.6 7.9 8.4 8.9 Value per Share (2) $1.25 $1.34 $1.40 $1.47 $1.55 $1.64 13.0% Television Enterprise Value $59,035 $62,661 $64,837 $67,324 $70,193 $73,541 As a Multiple of (1): 1994 Segment EBITDA $8,302 7.1x 7.5x 7.8x 8.1x 8.5x 8.9x 1995E Segment EBITDA $9,303 6.3 6.7 7.0 7.2 7.5 7.9 1996E Segment EBITDA $9,857 6.0 6.4 6.6 6.8 7.1 7.5 Value per Share (2) $1.11 $1.18 $1.22 $1.26 $1.32 $1.38 14.0% Television Enterprise Value $53,148 $55,840 $57,423 $59,204 $61,223 $63,531 As a Multiple of (1): 1994 Segment EBITDA $8,302 6.4x 6.7x 6.9x 7.1x 7.4x 7.7x 1995E Segment EBITDA $9,303 5.7 6.0 6.2 6.4 6.6 6.8 1996E Segment EBITDA $9,857 5.4 5.7 5.8 6.0 6.2 6.4 Value per Share (2) $1.00 $1.05 $1.08 $1.11 $1.15 $1.19 (1) EBITDA figures based on discounted cash flow analysis. (2) Values per share based on discounted cash flow analysis. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN Cellular - McCaw Case (Without AT&T Synergies) Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPS 25,722 25,980 26,240 26,502 26,767 27,034 27,304 27,578 27,854 28,133 28,414 % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning Subscribers 767.205 1,084.603 1,542.510 1,968.679 2,292.740 2,612.018 2,925.895 3,227.817 3,510.390 3,769.132 3,972.509 Gross Subscribers Added 543.305 719.061 768.441 707.998 738.034 768.469 790.638 799.337 794.478 770.801 744.273 Deactiva- tions (221.777) (274.801) (343.355) (384.671) (419.506) (454.870) (487.558) (518.039) (535.439) (568.246) (593.681) Annual % Churn (23.95%) (20.92%) (19.56%) (18.05%) (17.11%) (16.43%) (15.85%) (15.38%) (14.71%) (14.68%) (14.67%) Monthly % Churn (2.00%) (1.74%) (1.63%) (1.50%) (1.43%) (1.37%) (1.32%) (1.28%) (1.23%) (1.22%) (1.22%) Net Subscribers Added 321.528 444.260 425.086 323.327 318.528 313.599 303.080 281.298 259.039 202.555 150.592 Ending Sub- scribers 1,084.603 1,542.510 1,968.679 2,292.740 2,612.018 2,925.895 3,227.817 3,510.390 3,769.132 3,972.509 4,123.789 Average Subscribers 925.904 1,313.557 1,755.595 2,130.710 2,452.379 2,768.957 3,076.856 3,369.104 3,639.761 3,870.821 4,048.149 Total Pene- tration 4.22% 5.94% 7.50% 8.65% 9.76% 10.82% 11.82% 12.73% 13.53% 14.12% 14.51% % Penetration Growth NA 40.8% 26.4% 15.3% 12.8% 10.9% 9.2% 7.7% 6.3% 4.4% 2.8% Annual Pene- tration (1) 1.25% 1.71% 1.62% 1.22% 1.19% 1.16% 1.11% 1.02% 0.93% 0.72% 0.53% % Growth NA 36.8% (5.3%) (24.7%) (2.5%) (2.5%) (4.3%) (8.1%) (8.8%) (22.6%) (26.4%) (1)Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (cont'd) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $83.46 $73.56 $65.70 $60.81 $57.42 $54.60 $52.44 $51.11 $50.03 $49.46 $48.90 % Growth NA (11.9%) (10.7%) (7.4%) (5.6%) (4.9%) (3.9%) (2.5%) (2.1%) (1.1%) (1.1%) Total Rev- enues $927,344 $1,159,472 $1,384,214 $1,554,849 $1,689,892 $1,814,133 $1,936,371 $2,066,517 $2,185,024 $2,297,456 $2,375,415 % Growth NA 25.0% 19.4% 12.3% 8.7% 7.4% 6.7% 6.7% 5.7% 5.1% 3.4% Direct Operating Expenses $292,577 $346,573 $431,471 $512,801 $590,145 $659,929 $732,158 $812,259 $894,278 $979,774 $1,035,697 % of Revenues 31.5% 29.9% 31.2% 33.0% 34.9% 36.4% 37.8% 39.3% 40.9% 42.6% 43.6% Cash Flow Before Marketing $634,767 $812,899 $952,743 $1,042,048 $1,099,747 $1,154,204 $1,204,213 $1,254,258 $1,290,746 $1,317,682 $1,339,718 Margin 68.5% 70.1% 68.8% 67.0% 65.1% 63.6% 62.2% 60.7% 59.1% 57.4% 56.4% Sales & Marketing $235,251 $294,815 $314,292 $320,015 $328,425 $328,136 $320,999 $312,541 $297,929 $281,342 $260,496 % of Revenues 25.4% 25.4% 22.7% 20.6% 19.4% 18.1% 16.6% 15.1% 13.6% 12.2% 11.0% Sales & Marketing/ Gross Addition $433 $410 $409 $452 $445 $427 $406 $391 $375 $365 $350 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $527,828 $641,388 $745,763 $832,816 $918,570 $988,065 $1,053,157 $1,124,800 $1,192,207 $1,261,116 $1,296,193 Operating Cash Flow (OCF) $399,516 $518,084 $638,451 $722,033 $771,322 $826,068 $883,214 $941,717 $992,817 $1,036,340 $1,079,222 Margin 43.1% 44.7% 46.1% 46.4% 45.6% 45.5% 45.6% 45.6% 45.4% 45.1% 45.4% Depreciation & Amortiz- ation $118,070 $147,554 $206,333 $200,825 $193,549 $182,849 $172,149 $151,996 $131,711 $112,727 $93,804 % of Revenues 12.7% 12.7% 14.9% 12.9% 11.5% 10.1% 8.9% 7.4% 6.0% 4.9% 3.9% EBIT $281,445 $370,530 $432,118 $521,208 $577,773 $643,219 $711,065 $789,721 $861,105 $923,613 $985,419 Margin 30.3% 32.0% 31.2% 33.5% 34.2% 35.5% 36.7% 38.2% 39.4% 40.2% 41.5% Taxes $106,949 $140,801 $164,205 $198,059 $219,554 $244,423 $270,205 $300,094 $327,220 $350,973 $374,459 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $174,496 $229,729 $267,913 $323,149 $358,219 $398,796 $440,861 $489,627 $533,885 $572,640 $610,960 Net Margin 18.8% 19.8% 19.4% 20.8% 21.2% 22.0% 22.8% 23.7% 24.4% 24.9% 25.7% Free Cash Flow Unlevered Net Income $174,496 $229,729 $267,913 $323,149 $358,219 $398,796 $440,861 $489,627 $533,885 $572,640 $610,960 Depreciation & Amortiz- ation $118,070 $147,554 $206,333 $200,825 $193,549 $182,849 $172,149 $151,996 $131,711 $112,727 $93,804 Capital Expendi- tures ($175,325) ($235,316) ($253,936) ($215,639) ($149,673) ($137,623) ($128,619) ($107,000) ($97,588) ($75,566) ($54,854) Change in Working Capital $0 ($23,213) ($22,474) ($17,064) ($13,504) ($12,424) ($12,224) ($13,015) ($11,851) ($11,243) ($7,796) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $117,242 $118,754 $197,836 $291,271 $388,591 $431,597 $472,166 $521,609 $556,158 $598,558 $642,113 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (cont'd)(1) (in thousands, except per share and per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $2,259,146 $2,259,146 $2,259,146 $2,259,146 $2,259,146 $2,259,146 Terminal Value $3,539,800 $4,169,476 $4,570,179 $5,051,022 $5,638,720 $6,373,342 Enterprise Value $5,798,946 $6,428,622 $6,829,325 $7,310,168 $7,897,866 $8,632,488 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $4,380,755 $5,010,431 $5,411,134 $5,891,978 $6,479,675 $7,214,297 Value per Share (3) $82.20 $94.02 $101.54 $110.56 $121.59 $135.37 Enterprise Value / POP $224.32 $248.68 $264.18 $282.78 $305.51 $333.93 Implied Exit Multiple of EBITDA 8.8x 10.4x 11.4x 12.6x 14.1x 15.9x 12.0% Present Value of Cash Flows $2,150,765 $2,150,765 $2,150,765 $2,150,765 $2,150,765 $2,150,765 Terminal Value $2,844,355 $3,281,949 $3,551,237 $3,865,406 $4,236,697 $4,682,247 Enterprise Value $4,995,120 $5,432,713 $5,702,002 $6,016,171 $6,387,462 $6,833,011 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $3,576,930 $4,014,523 $4,283,811 $4,597,980 $4,969,272 $5,414,821 Value per Share (3) $67.12 $75.33 $80.38 $86.28 $93.25 $101.61 Enterprise Value / POP $193.23 $210.15 $220.57 $232.72 $247.09 $264.32 Implied Exit Multiple of EBITDA 7.7x 8.9x 9.7x 10.5x 11.5x 12.7x 13.0% Present Value of Cash Flows $2,049,545 $2,049,545 $2,049,545 $2,049,545 $2,049,545 $2,049,545 Terminal Value $2,323,578 $2,639,161 $2,828,510 $3,044,909 $3,294,601 $3,585,907 Enterprise Value $4,373,123 $4,688,705 $4,878,055 $5,094,454 $5,344,145 $5,635,452 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $2,954,933 $3,270,515 $3,459,864 $3,676,263 $3,925,955 $4,217,261 Value per Share (3) $55.45 $61.37 $64.92 $68.98 $73.67 $79.14 Enterprise Value / POP $169.17 $181.37 $188.70 $197.07 $206.73 $218.00 Implied Exit Multiple of EBITDA 6.9x 7.8x 8.4x 9.0x 9.7x 10.6x 14.0% Present Value of Cash Flows $1,954,918 $1,954,918 $1,954,918 $1,954,918 $1,954,918 $1,954,918 Terminal Value $1,923,309 $2,157,558 $2,295,351 $2,450,369 $2,626,056 $2,826,841 Enterprise Value $3,878,227 $4,112,476 $4,250,270 $4,405,287 $4,580,974 $4,781,759 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $2,460,036 $2,694,285 $2,832,079 $2,987,097 $3,162,784 $3,363,569 Value per Share (3) $46.16 $50.56 $53.14 $56.05 $59.35 $63.12 Enterprise Value / POP $150.02 $159.08 $164.41 $170.41 $177.21 $184.97 Implied Exit Multiple of EBITDA 6.2x 6.9x 7.4x 7.9x 8.4x 9.1x (1) Present values as of 6/30/95. Enterprise value per POP based on 6/30/95 estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Based on 12/31/94 net debt of $1,560 million, less option proceeds of $142 million, based on 1,659,986 options outstanding as of 1/31/95 at an average exercise price of $85.46 per LIN mgmt. (3) Based on fully diluted shares including 51,632,000 shares outstanding as of 12/31/94, plus 1,659,986 options outstanding as of 1/31/95 per LIN management. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (in thousands, except per share and per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Cellular Enterprise Value $5,798,946 $6,428,622 $6,829,325 $7,310,168 $7,897,866 $8,632,488 As a Multiple of (1): 1994 Cellular EBITDA $399,516 14.5x 16.1x 17.1x 18.3x 19.8x 21.6x 1995E Cellular EBITDA $518,084 11.2 12.4 13.2 14.1 15.2 16.7 1996E Cellular EBITDA $638,451 9.1 10.1 10.7 11.4 12.4 13.5 Value per Share (2) $82.20 $94.02 $101.54 $110.56 $121.59 $135.37 12.0% Cellular Enterprise Value $4,995,120 $5,432,713 $5,702,002 $6,016,171 $6,387,462 $6,833,011 As a Multiple of (1): 1994 Cellular EBITDA $399,516 12.5x 13.6x 14.3x 15.1x 16.0x 17.1x 1995E Cellular EBITDA $518,084 9.6 10.5 11.0 11.6 12.3 13.2 1996E Cellular EBITDA $638,451 7.8 8.5 8.9 9.4 10.0 10.7 Value per Share (2) $67.12 $75.33 $80.38 $86.28 $93.25 $101.61 13.0% Cellular Enterprise Value $4,373,123 $4,688,705 $4,878,055 $5,094,454 $5,344,145 $5,635,452 As a Multiple of (1): 1994 Cellular EBITDA $399,516 10.9x 11.7x 12.2x 12.8x 13.4x 14.1x 1995E Cellular EBITDA $518,084 8.4 9.1 9.4 9.8 10.3 10.9 1996E Cellular EBITDA $638,451 6.8 7.3 7.6 8.0 8.4 8.8 Value per Share (2) $55.45 $61.37 $64.92 $68.98 $73.67 $79.14 14.0% Cellular Enterprise Value $3,878,227 $4,112,476 $4,250,270 $4,405,287 $4,580,974 $4,781,759 As a Multiple of (1): 1994 Cellular EBITDA $399,516 9.7x 10.3x 10.6x 11.0x 11.5x 12.0x 1995E Cellular EBITDA $518,084 7.5 7.9 8.2 8.5 8.8 9.2 1996E Cellular EBITDA $638,451 6.1 6.4 6.7 6.9 7.2 7.5 Value per Share (2) $46.16 $50.56 $53.14 $56.05 $59.35 $63.12 (1) EBITDA figures based on discounted cash flow analysis. (2) Values per share based on discounted cash flow analysis. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: Wireless Data Operating Model (in thousands) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Total Revenues $0 $2,250 $9,000 $23,750 $44,500 $73,500 $106,500 $138,450 $179,985 $233,981 $304,175 % Growth NA NM 300.0% 163.9% 87.4% 65.2% 44.9% 30.0% 30.0% 30.0% 30.0% Direct Operating Expenses $0 $4,225 $7,000 $11,000 $17,000 $20,000 $22,750 $29,575 $38,448 $49,982 $64,976 % of Revenues NA 187.8% 77.8% 46.3% 38.2% 27.2% 21.4% 21.4% 21.4% 21.4% 21.4% Cash Flow Before Marketing $0 ($1,975) $2,000 $12,750 $27,500 $53,500 $83,750 $108,875 $141,537 $183,999 $239,199 Margin NA (87.8%) 22.2% 53.7% 61.8% 72.8% 78.6% 78.6% 78.6% 78.6% 78.6% Sales & Marketing $0 $2,750 $5,250 $9,500 $15,500 $22,000 $32,000 $41,600 $54,080 $70,304 $91,395 % of Revenues NA 122.2% 58.3% 40.0% 34.8% 29.9% 30.0% 30.0% 30.0% 30.0% 30.0% Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $0 $6,975 $12,250 $20,500 $32,500 $42,000 $54,750 $71,175 $92,528 $120,286 $156,371 Operating Cash Flow (OCF) $0 ($4,725) ($3,250) $3,250 $12,000 $31,500 $51,750 $67,275 $87,457 $113,695 $147,804 Margin NA (210.0%) (36.1%) 13.7% 27.0% 42.9% 48.6% 48.6% 48.6% 48.6% 48.6% Depreciation & Amorti- zation $0 $10,600 $11,160 $8,696 $9,197 $10,149 $8,416 $6,666 $6,330 $6,071 $5,524 % of Revenues NA 471.1% 124.0% 36.6% 20.7% 13.8% 7.9% 4.8% 3.5% 2.6% 1.8% EBIT $0 ($15,325) ($14,410) ($5,446) $2,803 $21,351 $43,334 $60,609 $81,127 $107,624 $142,280 Margin NA (681.1%) (160.1%) (22.9%) 6.3% 29.0% 40.7% 43.8% 45.1% 46.0% 46.8% Taxes $0 ($5,824) ($5,476) ($2,069) $1,065 $8,113 $16,467 $23,031 $30,828 $40,897 $54,066 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $0 ($9,502) ($8,934) ($3,377) $1,738 $13,238 $26,867 $37,578 $50,299 $66,727 $88,214 Net Margin NA (422.3%) (99.3%) (14.2%) 3.9% 18.0% 25.2% 27.1% 27.9% 28.5% 29.0% Free Cash Flow Unlevered Net Income $0 ($9,502) ($8,934) ($3,377) $1,738 $13,238 $26,867 $37,578 $50,299 $66,727 $88,214 Depreciation & Amorti- zation $0 $10,600 $11,160 $8,696 $9,197 $10,149 $8,416 $6,666 $6,330 $6,071 $5,524 Capital Expenditures $0 ($19,000) ($5,000) ($5,000) ($10,000) ($10,000) ($5,250) ($5,250) ($5,250) ($5,250) ($5,250) Change in Working Capital $0 ($225) ($675) ($1,475) ($2,075) ($2,900) ($3,300) ($3,195) ($4,154) ($5,400) ($7,019) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $0 ($18,127) ($3,449) ($1,156) ($1,140) $10,487 $26,733 $35,799 $47,225 $62,148 $81,468 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: Wireless Data (in thousands, except per share values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 6.0% 8.0% 10.0% 12.0% 14.0% 18.0% Present Value of Cash Flows $61,284 $61,284 $61,284 $61,284 $61,284 Terminal Value $149,360 $182,613 $232,494 $315,628 $481,897 Enterprise Value $210,644 $243,897 $293,778 $376,912 $543,181 Net Debt $0 $0 $0 $0 $0 Equity Value $210,644 $243,897 $293,778 $376,912 $543,181 Value per Share $3.95 $4.58 $5.51 $7.07 $10.19 Implied Exit Multiple of EBITDA 4.9x 6.0x 7.6x 10.3x 15.7x 19.0% Present Value of Cash Flows $56,869 $56,869 $56,869 $56,869 $56,869 Terminal Value $127,249 $153,223 $190,740 $249,696 $355,817 Enterprise Value $184,118 $210,092 $247,609 $306,566 $412,686 Net Debt $0 $0 $0 $0 $0 Equity Value $184,118 $210,092 $247,609 $306,566 $412,686 Value per Share $3.45 $3.94 $4.65 $5.75 $7.74 Implied Exit Multiple of EBITDA 4.5x 5.4x 6.7x 8.8x 12.6x #### Present Value of Cash Flows $52,775 $52,775 $52,775 $52,775 $52,775 Terminal Value $109,130 $129,721 $158,547 $201,788 $273,855 Enterprise Value $161,905 $182,496 $211,322 $254,563 $326,630 Net Debt $0 $0 $0 $0 $0 Equity Value $161,905 $182,496 $211,322 $254,563 $326,630 Value per Share $3.04 $3.42 $3.97 $4.78 $6.13 Implied Exit Multiple of EBITDA 4.2x 5.0x 6.1x 7.7x 10.5x 21.0% Present Value of Cash Flows $48,975 $48,975 $48,975 $48,975 $48,975 Terminal Value $94,133 $110,664 $133,207 $165,769 $216,937 Enterprise Value $143,108 $159,639 $182,182 $214,744 $265,912 Net Debt $0 $0 $0 $0 $0 Equity Value $143,108 $159,639 $182,182 $214,744 $265,912 Value per Share $2.69 $3.00 $3.42 $4.03 $4.99 Implied Exit Multiple of EBITDA 3.9x 4.6x 5.5x 6.9x 9.0x (1) Present values as of 6/30/95. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN Cellular - Sensitivity Case Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPS 25,722 25,980 26,240 26,502 26,767 27,034 27,304 27,578 27,854 28,133 28,414 % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning Subscribers 771.302 1,092.076 1,587.399 2,070.865 2,481.767 2,886.521 3,284.306 3,666.878 4,024.885 4,352.573 4,610.246 Gross Subscribers Added 557.510 744.662 822.650 805.766 855.424 899.623 934.151 947.786 944.519 968.685 881.533 Deactiva- tions (236.737) (249.339) (339.184) (394.864) (450.669) (501.838) (551.579) (589.779) (616.831) (711.013) (689.666) Annual % Churn (25.41%) (18.61%) (18.54%) (17.35%) (16.79%) (16.26%) (15.87%) (15.34%) (14.73%) (15.87%) (14.65%) Monthly % Churn (2.12%) (1.55%) (1.55%) (1.45%) (1.40%) (1.36%) (1.32%) (1.28%) (1.23%) (1.32%) (1.22%) Net Subscribers Added 320.774 495.322 483.466 410.902 404.754 397.785 382.573 358.007 327.688 257.673 191.867 Ending Sub- scribers 1,092.076 1,587.399 2,070.865 2,481.767 2,886.521 3,284.306 3,666.878 4,024.885 4,352.573 4,610.246 4,802.113 Average Subscribers 931.689 1,339.737 1,829.132 2,276.316 2,684.144 3,085.413 3,475.592 3,845.882 4,188.729 4,481.410 4,706.180 Total Penetration 4.25% 6.11% 7.89% 9.36% 10.78% 12.15% 13.43% 14.59% 15.63% 16.39% 16.90% % Penetration Growth NA 43.9% 29.2% 18.7% 15.2% 12.7% 10.5% 8.7% 7.1% 4.9% 3.1% Annual Pene- tration (1) 1.25% 1.91% 1.84% 1.55% 1.51% 1.47% 1.40% 1.30% 1.18% 0.92% 0.68% % Growth NA 52.9% (3.4%) (15.9%) (2.5%) (2.7%) (4.8%) (7.3%) (9.4%) (22.1%) (26.3%) (1) Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (cont'd) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $82.60 $73.09 $66.84 $62.53 $60.13 $57.29 $55.83 $55.17 $54.94 $54.75 $54.15 % Growth NA (11.5%) (8.6%) (6.4%) (3.8%) (4.7%) (2.6%) (1.2%) (0.4%) (0.3%) (1.1%) Total Revenues $923,546 $1,175,108 $1,467,136 $1,708,154 $1,936,835 $2,121,322 $2,328,346 $2,546,174 $2,761,366 $2,944,454 $3,057,837 % Growth NA 27.2% 24.9% 16.4% 13.4% 9.5% 9.8% 9.4% 8.5% 6.6% 3.9% Direct Operating Expenses $279,817 $339,134 $461,244 $559,882 $665,940 $750,474 $858,201 $975,525 $1,096,295 $1,193,546 $1,261,177 % of Rev- enues 30.3% 28.9% 31.4% 32.8% 34.4% 35.4% 36.9% 38.3% 39.7% 40.5% 41.2% Cash Flow Before Marketing $643,729 $835,974 $1,005,891 $1,148,272 $1,270,895 $1,370,848 $1,470,145 $1,570,650 $1,665,070 $1,750,908 $1,796,660 Margin 69.7% 71.1% 68.6% 67.2% 65.6% 64.6% 63.1% 61.7% 60.3% 59.5% 58.8% Sales & Marketing $241,402 $305,311 $336,464 $364,206 $380,663 $384,139 $379,265 $370,584 $354,195 $353,570 $308,537 % of Rev- enues 26.1% 26.0% 22.9% 21.3% 19.7% 18.1% 16.3% 14.6% 12.8% 12.0% 10.1% Sales & Marketing/ Gross Addition $433 $410 $409 $452 $445 $427 $406 $391 $375 $365 $350 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Rev- enues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $521,219 $644,446 $797,708 $924,088 $1,046,603 $1,134,613 $1,237,467 $1,346,109 $1,450,490 $1,547,117 $1,569,714 Operating Cash Flow (OCF) $402,327 $530,663 $669,428 $784,066 $890,232 $986,709 $1,090,879 $1,200,065 $1,310,876 $1,397,338 $1,488,123 Margin 43.6% 45.2% 45.6% 45.9% 46.0% 46.5% 46.9% 47.1% 47.5% 47.5% 48.7% Depreciation & Amorti- zation $128,184 $188,818 $238,986 $260,674 $261,625 $248,446 $227,060 $202,078 $175,851 $152,833 $130,473 % of Rev- enues 13.9% 16.1% 16.3% 15.3% 13.5% 11.7% 9.8% 7.9% 6.4% 5.2% 4.3% EBIT $274,143 $341,845 $430,442 $523,392 $628,606 $738,263 $863,819 $997,988 $1,135,025 $1,244,505 $1,357,650 Margin 29.7% 29.1% 29.3% 30.6% 32.5% 34.8% 37.1% 39.2% 41.1% 42.3% 44.4% Taxes $104,174 $129,901 $163,568 $198,889 $238,870 $280,540 $328,251 $379,235 $431,309 $472,912 $515,907 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $169,968 $211,944 $266,874 $324,503 $389,736 $457,723 $535,568 $618,752 $703,715 $771,593 $841,743 Net Margin 18.4% 18.0% 18.2% 19.0% 20.1% 21.6% 23.0% 24.3% 25.5% 26.2% 27.5% Free Cash Flow Unlevered Net Income $169,968 $211,944 $266,874 $324,503 $389,736 $457,723 $535,568 $618,752 $703,715 $771,593 $841,743 Depreciation & Amorti- zation $128,184 $188,818 $238,986 $260,674 $261,625 $248,446 $227,060 $202,078 $175,851 $152,833 $130,473 Capital Expendi- tures ($190,343) ($301,124) ($294,122) ($279,903) ($202,317) ($186,996) ($169,646) ($142,256) ($130,292) ($102,451) ($76,298) Change in Working Capital $0 ($25,156) ($29,203) ($24,102) ($22,868) ($18,449) ($20,702) ($21,783) ($21,519) ($18,309) ($11,338) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $107,810 $74,482 $182,535 $281,172 $426,176 $500,725 $572,280 $656,792 $727,755 $803,666 $884,580 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (cont'd)(1) (in thousands, except per share and per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $2,664,463 $2,664,463 $2,664,463 $2,664,463 $2,664,463 $2,664,463 Terminal Value $4,876,457 $5,743,903 $6,295,915 $6,958,328 $7,767,945 $8,779,966 Enterprise Value $7,540,919 $8,408,366 $8,960,377 $9,622,791 $10,432,408 $11,444,429 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $6,122,729 $6,990,175 $7,542,187 $8,204,600 $9,014,217 $10,026,238 Value per Share (3) $114.89 $131.17 $141.53 $153.96 $169.15 $188.14 Enterprise Value / POP $291.70 $325.26 $346.61 $372.24 $403.56 $442.70 Implied Exit Multiple of EBITDA 8.8x 10.4x 11.4x 12.6x 14.1x 15.9x 12.0% Present Value of Cash Flows $2,528,756 $2,528,756 $2,528,756 $2,528,756 $2,528,756 $2,528,756 Terminal Value $3,918,407 $4,521,238 $4,892,212 $5,325,014 $5,836,508 $6,450,300 Enterprise Value $6,447,163 $7,049,995 $7,420,968 $7,853,770 $8,365,264 $8,979,056 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $5,028,972 $5,631,804 $6,002,778 $6,435,580 $6,947,074 $7,560,866 Value per Share (3) $94.37 $105.68 $112.64 $120.76 $130.36 $141.88 Enterprise Value / POP $249.40 $272.71 $287.06 $303.81 $323.59 $347.34 Implied Exit Multiple of EBITDA 7.7x 8.9x 9.6x 10.5x 11.5x 12.7x 13.0% Present Value of Cash Flows $2,402,254 $2,402,254 $2,402,254 $2,402,254 $2,402,254 $2,402,254 Terminal Value $3,200,980 $3,635,729 $3,896,578 $4,194,691 $4,538,668 $4,939,974 Enterprise Value $5,603,234 $6,037,983 $6,298,832 $6,596,945 $6,940,922 $7,342,228 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $4,185,044 $4,619,792 $4,880,641 $5,178,754 $5,522,731 $5,924,038 Value per Share (3) $78.53 $86.69 $91.58 $97.18 $103.63 $111.16 Enterprise Value / POP $216.75 $233.57 $243.66 $255.19 $268.50 $284.02 Implied Exit Multiple of EBITDA 6.9x 7.8x 8.4x 9.0x 9.7x 10.6x 14.0% Present Value of Cash Flows $2,284,215 $2,284,215 $2,284,215 $2,284,215 $2,284,215 $2,284,215 Terminal Value $2,649,565 $2,972,269 $3,162,094 $3,375,648 $3,617,676 $3,894,279 Enterprise Value $4,933,780 $5,256,484 $5,446,309 $5,659,863 $5,901,890 $6,178,493 Less: Net Debt (2) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) ($1,418,191) Equity Value $3,515,589 $3,838,293 $4,028,118 $4,241,672 $4,483,700 $4,760,303 Value per Share (3) $65.97 $72.02 $75.59 $79.59 $84.13 $89.32 Enterprise Value / POP $190.85 $203.34 $210.68 $218.94 $228.30 $239.00 Implied Exit Multiple of EBITDA 6.2x 6.9x 7.4x 7.9x 8.4x 9.1x (1) Present values as of 6/30/95. Enterprise value per POP based on 6/30/95 estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Based on 12/31/94 net debt of $1,560 million, less option proceeds of $142 million, based on 1,659,986 options outstanding as of 1/31/95 at an average exercise price of $85.46 per LIN mgmt. (3) Based on fully diluted shares including 51,632,000 shares outstanding as of 12/31/94, plus 1,659,986 options outstanding as of 1/31/95 per LIN management. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- LIN: not including Wireless Data, including Long Distance, including Additional Products (in thousands, except per share and per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Cellular Enterprise Value $7,540,919 $8,408,366 $8,960,377 $9,622,791 $10,432,408 $11,444,429 As a Multiple of (1): 1994 Cellular EBITDA $402,327 18.7x 20.9x 22.3x 23.9x 25.9x 28.4x 1995E Cellular EBITDA $530,663 14.2 15.8 16.9 18.1 19.7 21.6 1996E Cellular EBITDA $669,428 11.3 12.6 13.4 14.4 15.6 17.1 Value per Share (2) $114.89 $131.17 $141.53 $153.96 $169.15 $188.14 12.0% Cellular Enterprise Value $6,447,163 $7,049,995 $7,420,968 $7,853,770 $8,365,264 $8,979,056 As a Multiple of (1): 1994 Cellular EBITDA $402,327 16.0x 17.5x 18.4x 19.5x 20.8x 22.3x 1995E Cellular EBITDA $530,663 12.1 13.3 14.0 14.8 15.8 16.9 1996E Cellular EBITDA $669,428 9.6 10.5 11.1 11.7 12.5 13.4 Value per Share (2) $94.37 $105.68 $112.64 $120.76 $130.36 $141.88 13.0% Cellular Enterprise Value $5,603,234 $6,037,983 $6,298,832 $6,596,945 $6,940,922 $7,342,228 As a Multiple of (1): 1994 Cellular EBITDA $402,327 13.9x 15.0x 15.7x 16.4x 17.3x 18.2x 1995E Cellular EBITDA $530,663 10.6 11.4 11.9 12.4 13.1 13.8 1996E Cellular EBITDA $669,428 8.4 9.0 9.4 9.9 10.4 11.0 Value per Share (2) $78.53 $86.69 $91.58 $97.18 $103.63 $111.16 14.0% Cellular Enterprise Value $4,933,780 $5,256,484 $5,446,309 $5,659,863 $5,901,890 $6,178,493 As a Multiple of (1): 1994 Cellular EBITDA $402,327 12.3x 13.1x 13.5x 14.1x 14.7x 15.4x 1995E Cellular EBITDA $530,663 9.3 9.9 10.3 10.7 11.1 11.6 1996E Cellular EBITDA $669,428 7.4 7.9 8.1 8.5 8.8 9.2 Value per Share (2) $65.97 $72.02 $75.59 $79.59 $84.13 $89.32 (1) EBITDA figures based on discounted cash flow analysis. (2) Values per share based on discounted cash flow analysis. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- DCF Discussion Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- DCF Discussion - -- DCF valuation ranges are extremely sensitive to changes in both operating assumptions and valuation parameters given nature of cellular and wireless data industries - -- In performing DCF analysis, WP&Co. looked at different assumptions regarding weighted average cost of capital and terminal value - WP&Co. also considered the conflicting arguments presented by Bear Stearns/Lehman and Morgan Stanley regarding both the cellular segment and the wireless data segment - High variability regarding appropriate valuation of wireless data segment is not unusual in industries that are in a relatively early stage of development - -- Valuation parameters were applied to the Management Case, the McCaw Case, and a Sensitivity Case (the latter case being analyzed following completion of due diligence process) Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Assumptions and Calculations* ASSUMPTIONS UNLEVERED BETAS (1) Current Mkt. Val. Mkt. Val. Debt/ Tax Rate 40.00% Levered of Debt of Equity Total Unlevered Risk Free 7.40% Company Beta (2) ($MM) ($MM) Capital Beta (3) Rate of Return Market 7.22% AirTouch Risk Premium Comm. 0.86 $87 $13,388 0.6% 0.86 LIN Broadcasting 1.10 1,596 6,680 19.3% 0.96 Cellular Comm. 0.78 355 2,011 15.0% 0.71 Vanguard Cellular 1.04 303 979 23.6% 0.88 Risk Free Rate Average 0.95 $585 $5,764 14.6% 0.85 = 10 year U.S. Treasury as of 3/6/95 Market Risk Premium as per Ibbotson, 1994 Yearbook WEIGHTED AVERAGE COST OF CAPITAL (4) Capital Cost of Equity Cost of Debt Wtd. Avg. Structure Debt/ Debt/ Relevered Cost of Before After Cost of Capital Equity Beta (5) Equity Tax Tax Capital 0% 0% 0.85 13.54% 9.000% 5.40% 13.54% 5% 5% 0.88 13.73% 9.000% 5.40% 13.32% 10% 11% 0.91 13.95% 9.000% 5.40% 13.10% 15% 18% 0.94 14.19% 9.000% 5.40% 12.87% 20% 25% 0.98 14.46% 9.000% 5.40% 12.65% 25% 33% 1.02 14.77% 9.333% 5.60% 12.48% 30% 43% 1.07 15.12% 9.667% 5.80% 12.32% 35% 54% 1.13 15.52% 10.000% 6.00% 12.19% * WACC is widely acknowledged to be only an estimate of the cost of capital, as the capital asset pricing model is no longer perfectly consistent with recent finance theory. (1) Assumes book value of debt approximates market value and excludes minority interests. (2) Predicted beta as per BARRA, U.S. Equity Beta Book, January 1995. (3) Unlevered Beta = Levered Beta / { 1+ (Debt/Equity)*(1-Tax Rate)}. (4) Based on the Weighted Average Cost of Capital and the Capital Asset Pricing Model and on WP&Co. calculations. (5) Relevered Beta = Unlevered Beta * {1 + (Debt/Equity)*(1-Tax Rate)}. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Implied Perpetuity Growth Rates Based on a Range of Exit Multiples and Discount Rates Sample Method: EBITDAyear10*Exit Multipleyear10 = FCFyear10*(1+Growth Rate) (WACC - Growth Rate) Assumption: (1) FCFyear10 / EBITDAyear10 = 60.8% Discount Rate Exit Multiple 7.5x 8.0x 8.5x 9.0x 9.5x 10.0x 10.5x 11.0x 11.5x 12.0x 12.5x 13.0x 10.0% 1.8% 2.2% 2.7% 3.0% 3.4% 3.7% 4.0% 4.2% 4.5% 4.7% 4.9% 5.1% 10.5% 2.2% 2.7% 3.1% 3.5% 3.9% 4.2% 4.5% 4.7% 5.0% 5.2% 5.4% 5.6% 11.0% 2.7% 3.2% 3.6% 4.0% 4.3% 4.6% 4.9% 5.2% 5.4% 5.6% 5.9% 6.0% 11.5% 3.1% 3.6% 4.1% 4.4% 4.8% 5.1% 5.4% 5.7% 5.9% 6.1% 6.3% 6.5% 12.0% 3.6% 4.1% 4.5% 4.9% 5.3% 5.6% 5.9% 6.1% 6.4% 6.6% 6.8% 7.0% 12.5% 4.1% 4.6% 5.0% 5.4% 5.7% 6.1% 6.3% 6.6% 6.9% 7.1% 7.3% 7.5% 13.0% 4.5% 5.0% 5.5% 5.8% 6.2% 6.5% 6.8% 7.1% 7.3% 7.6% 7.8% 8.0% 13.5% 5.0% 5.5% 5.9% 6.3% 6.7% 7.0% 7.3% 7.6% 7.8% 8.0% 8.2% 8.4% 14.0% 5.5% 5.9% 6.4% 6.8% 7.1% 7.5% 7.8% 8.0% 8.3% 8.5% 8.7% 8.9% 14.5% 5.9% 6.4% 6.9% 7.3% 7.6% 7.9% 8.2% 8.5% 8.8% 9.0% 9.2% 9.4% 15.0% 6.4% 6.9% 7.3% 7.7% 8.1% 8.4% 8.7% 9.0% 9.2% 9.5% 9.7% 9.9% (1) Based on LIN Management Case FCFyear10 / EBITDAyear10 including long distance and additional products, but not including wireless data. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Precedent Transactions and Public Company Trading Analysis Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Precedent M&A Transactions and Public Company Trading Analysis - -- Determining relevance in the context of either precedent M&A transactions or trading multiples analysis requires qualitative judgments and careful qualifications - -- LIN lacks a precise analogue among publicly traded cellular companies given its predominant major-market presence and its lack of international assets - -- LIN's trading pattern has been affected by existence of the Private Market Value Guarantee - -- Although there have been a number of recent cellular transactions, there have been few recent acquisitions of comparable scale to LIN's potential overall valuation - -- While the "per-POP" approach to analyzing the cellular industry has become less influential than cash-flow multiples as the business matures, many companies continue to disclose valuations on a per POP basis - -- The transaction environment has a degree of volatility over time because of such macroeconomic factors as interest rate and equity market fluctuations as well as such microeconomic factors as industry results and growth expectations - -- The wireless industry in particular has undergone dramatic changes in recent years and faces continued dynamic evolution Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- AT&T's Acquisition of McCaw: Summary Analysis and Perspective Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Summary Comparison of Assessment of AT&T's Acquisition of McCaw (in thousands, except per share and per POP values) Bear Stearns/Lehman Brothers Morgan Stanley Transaction Transaction Transaction Announcement Announcement Closing (8/13/93) (8/13/93) (9/19/94) Fully Diluted Shares Outstanding 217,374 202,000 (1) 208,800 (1) Share Price Used in Computation $62.38 $64.39 $55.00 Equity Value $13,334,925 (2) $13,005,972 $11,484,000 Net Debt $4,045,608 $4,134,000 (3) $5,089,000 (3) Total Enterprise Value $17,380,533 $17,139,972 $16,573,000 Less: Value of Non-Cellular Assets $559,574 $952,000 $1,334,000 Cellular Enterprise Value $16,820,959 $16,187,972 $15,239,000 No. of POPs 59,989 60,403 (4) 61,696 (4) Value per POP $280 $268 $247 LTM 6/30/93 Cellular EBITDA $655,028 (5) NA NA Multiple of LTM 6/30/93 EBITDA 25.7x NA NA 1993 Cellular EBITDA $797,940 (5) NA NA Multiple of 1993 EBITDA 21.1x NA NA LTM 6/30/94 Cellular EBITDA NA NA NA Multiple of LTM 6/30/94 EBITDA NA NA NA 1994E Cellular EBITDA $1,056,385 (5) $904,356 (6) $946,522 (6) Multiple of 1994E EBITDA 15.9x 17.9x 16.1x 1995E Cellular EBITDA NA $1,190,292 (6) $1,348,584 (6) Multiple of 1995E EBITDA NA 13.6x 11.3x (1) Morgan Stanley excluded 14.5 million shares AT&T already owned. (2) Includes option spread. (3) Includes option proceeds. (3) Actual values from McCaw public documents. (4) Implied POPs from per POP values provided by Morgan Stanley. (5) Source: Analyst reports estimates used by Bear Stearns / Lehman Brothers. (6) Implied EBITDA values from cash flow multiples provided by Morgan Stanley. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- AT&T's Acquisition of McCaw - Summary Transaction Analysis as Viewed by Bear Stearns/Lehman Brothers and Morgan Stanley (in thousands, except per share and per POP values) Bear Stearns / Lehman Brothers View Morgan Stanley View AT&T Share Price (8/13/93) $62.375 Announcement McCaw Share Price (8/13/93) $51.250 Equity Value: Premium 21.7% Projected Share Price at Closing $64.39 Fully Diluted Shares (excl. 14.5MM shares AT&T already owned) 202,000 No. of McCaw Shares Outstanding (6/30/93) 206,185 Total Equity Value $13,005,972 Equity Value $12,860,802 Plus: Options Outstanding -(12/31/92) 11,189 Projected Proportionate year-end 1994 net debt $4,610,000 Option Spread - Average Exercise Price $20.00 $474,123 Less: Total Equity Value $13,334,925 Projected net working capital ($256,000) McCaw other assets (paging, international and other) ($661,000) Net Debt (6/30/93) $4,809,922 52.5% of LIN-TV ($291,000) Less: 48% of LIN Net Debt (1) ($764,314) Option Proceeds ($220,000) Total Net Debt $4,045,608 Cellular Enterprise Value $16,187,972 Value per POP $268 Total Enterprise Value $17,380,533 Cellular Enterprise Value as a Multiple of: 1994E EBITDA (5) 1995E EBITDA (5) Less: Value of Non-Cellular Assets (2) ($559,574) 17.9x 13.6x Closing Cellular Enterprise Value $16,820,959 Equity Value: Share Price at Closing $55.00 Total Net POPs (3) 59,989 Fully Diluted Shares (excl. 14.5MM shares AT&T already owned) 208,800 Value per POP $280 Total Equity Value $11,484,000 Plus: Cellular Enterprise Value as a Multiple of (4): Proportionate 9/30/94 net debt $5,321,000 Less: LTM OCF (6/30/93) $655,028 25.7x Projected net working capital $73,000 1993 OCF $797,940 21.1 McCaw other assets (paging, international and other) ($954,000) 1994E OCF $1,056,385 15.9 52.5% of LIN-TV ($380,000) Option Proceeds ($305,000) Cellular Enterprise Value $15,239,000 Value per POP $247 Cellular Enterprise Value as a Multiple of: 1994E EBITDA (5) 1995E EBITDA (5) 16.1x 11.3x (1) Excludes $1,238 million of preferred stock exchangeable for LIN's 49.99% interest in Philadelphia, which is assumed to be redeemed. (2) Includes McCaw's estimated 472,500 pagers at $500 a pager, 52% of 8x LTM LIN's media properties cash flow of $67.0 million as of 6/30/93, McCaw's direct and indirect interest in American Mobile Satellite (AMSAT) equivalent to an equity value of $44.50 million as of 12/31/93. (3) Source: LB/BS. (4) Proportionate cellular OCF values from research estimates as used by LB/BS. Excludes Philadelphia (in millions): LTM as of 6/30/93 - $22.2; 1993 - $27.0;1994 - $35.8. (5) Obtained by Morgan Stanley from analyst reports and Morgan Stanley estimates. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Implied Value of LIN Based on AT&T's Acquisition of McCaw as Derived by Bear Stearns/Lehman Brothers and Morgan Stanley (in thousands, except per share data) Bear Stearns/:Lehman Brothers Methodology Morgan Stanley Methodology Apply 1994E EBITDA multiple as derived from Apply 1994E and 1995E EBITDA multiples derived from AT&T-McCaw transaction announcement date to AT&T McCaw transaction closing date to the 1994E the 1995E EBITDA of LIN, and add a range and 1995E EBITDA for LIN to come up with a range of LIN's of premia to that multiple to come up with current implied values a range of LIN's current applied values Assumptions Assumptions No. of Fully Diluted LIN Shares 53,292 No. of Fully Diluted LIN Shares 53,292 Net Debt Including Option Proceeds $1,418,191 Net Debt Including Option Proceeds $1,418,191 1995E Cash Flow $534,555 1994E Cash Flow (1) $395,200 Value of Non-Cellular Assets $112,000 Multiple of 1994E EBITDA 16.1x 1995E Cash Flow (1) $560,800 Multiple of 1995E EBITDA 11.3x Implied McCaw Value of Non-Cellular Assets $112,000 Standalone LIN Multiple of Implied Premium to Implied 6/30/95 Closing Year 1995E EBITDA McCaw Standalone LIN Value EBITDA Multiple for LIN Multiple per Share Implied LIN Value per Share 15.9x 15.9x 0.0% $135 Based on 1994E EBITDA $95 15.6x 17.2x 10.0% $148 Based on 1995E EBITDA $94 15.3x 18.4x 20.0% $160 Stated Range in Morgan Stanley Presentation 15.0x 19.5x 30.0% $171 $93 $97 (1) LIN EBITDA values obtained by Morgan Stanley from Salomon Brothers research dated 9/94. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Analysis of AT&T's Acquisition of McCaw - -- WP&Co. analyzed AT&T's acquisition of McCaw as follows: - Transaction announcement date of August 13, 1993 - The shares outstanding were obtained from McCaw 10-Q dated 6/30/93 -- The options outstanding and estimated strike price were obtained from McCaw 10-K dated 12/31/92 - McCaw net debt was obtained from McCaw 10-Q dated 6/30/93, and excluded the 48% of LIN debt that it did not own - The value of International and non-cellular assets was estimated as follows: -- 472,500 estimated pagers at $500 a pager - -- Approximately 52% of LIN media estimated as follows: - 9.5x LTM as of 6/30/93 EBITDA of LIN's media properties of $69.5 million from McCaw and LIN's public documents - -- $44.3 million for McCaw and LIN's pro rata ownership interests in American Mobile Satellite based on trading value at 12/13/93 (first day of public trading) - -- 1.7 million Hong Kong POPs at $10 per POP and 0.92 Mexican cellular POPs at $10 per POP (as of announcement date) - Proportionate cellular cash flow values for McCaw for LTM as of 6/30/93, year-ending 1993 and LTM as of 6/30/94 were obtained from McCaw public documents - Proportionate cellular cash flow estimate for McCaw for 1994 was a mean from selected research reports (Salomon Brothers - 9/94; CS First Boston - 7/94; Wheat First - 8/94) - Proportionate cellular cash flow estimate for McCaw for 1995 was a mean from selected research reports (Salomon Brothers - 9/94; Wheat First - 8/94) Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- AT&T's Acquisition of McCaw - Summary Transaction Analysis: WP&Co. View (in thousands, except per share and per POP values) Transaction Announcement (8/13/93) AT&T Share Price (8/13/93) $62.375 McCaw Share Price (8/13/93) $51.250 Premium 21.7% No. of McCaw Shares Outstanding (6/30/93) 206,185 Equity Value $12,860,802 Options Outstanding -(12/31/92) 11,189 Option Spread - Average Exercise Price $20.00 $474,123 Total Equity Value $13,334,925 Net Debt (6/30/93) $4,809,922 Less: 48% of LIN Net Debt (1) ($764,314) Total Net Debt $4,045,608 Total Enterprise Value $17,380,533 Less: Value of Non-Cellular Assets (2) ($649,814) Cellular Enterprise Value $16,730,720 Total Net POPs (3) 59,161 Value per POP $283 Cellular Enterprise Value as a Multiple of (4): LTM OCF (6/30/93) $660,130 25.3x 1993 OCF $730,901 22.9 LTM 6/30/94 OCF $798,605 20.9 1994E OCF $925,800 18.1 1995E OCF $1,283,350 13.0 (1) Excludes $1,238 million of preferred stock exchangeable for LIN's 49.99% interest in Philadelphia, which is assumed to be redeemed. (2) Includes McCaw's estimated 472,500 pagers at $500 a pager, 52% of 9.5x LTM LIN's media properties cash flow of $69.5 million as of 6/30/93, McCaw's direct and indirect interest in American Mobile Satellite (AMSAT) of 8.85% and AMSAT's equity value of $500.2 million as of 12/13/93, license for 1.7 million Hong Kong POPs at $10 a POP, and cellular license in Mexico for $10 a POP and 0.92 million POPs. (3) Includes all proportionate POPs, and excludes LIN's Philadelphia POPs. Source: DLJ - Spring 1993. (4) Proportionate cellular OCF values from McCaw 10-K and 10-Q. Excludes Philadelphia (in millions): LTM as of 6/30/93 - $13.9; 1993 - $18.0; LTM as of 6/30/94 - $29.8. Philadelphia estimates from LIN appraisal information, except for OCF of LTM as of 6/30/94, which is based on pro rata CAGR from 1992 to 1993. 1994 and 1995 OCF estimates from research analyst reports. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Implied Value of LIN as Part of AT&T's Acquisition of McCaw (Assuming No Difference in Value between McCaw and LIN) (in thousands, except per share and per POP values) Transaction Announcement (8/13/93) Based on Cellular EBITDA Multiples: LIN Implied Multiples based on Cellular LIN Cellular AT&T-McCaw EBITDA (1) Enterprise Value LTM (6/30/93) 25.3x $317,961 $8,058,600 1993 22.9 $338,749 $7,754,143 1994 18.1 $389,760 $7,043,600 Implied LIN Cellular Enterprise Value $7,043,600 - $8,058,600 Plus: Value of LIN Non-Cellular Assets (2) $694,062 Total LIN Implied Enterprise Value $7,737,663 - $8,752,662 Less: LIN Net Debt (6/30/93) (3) (4) ($1,529,779) Implied LIN Equity Value $6,207,884 - $7,222,883 No. of LIN Shares Outstanding (6/30/93) 51,447 No. of LIN Options Outstanding (12/31/92) 1,263 Fully Diluted LIN Shares 52,710 Implied LIN Value per Share (5) $117.77 - $137.03 LIN Share Price (8/13/93) $102.25 Implied Value as a Premium to Market 15.2% - 34.0% Implied Value per LIN POP (24.4 million POPs) $288.22 - $329.76 LIN Trading Value per POP $254.74 Implied per POP Value Premium to Market 13.1% - 29.4% (1) Cellular EBITDA values do not include Philadelphia (in millions): LTM as of 6/30/93 - $13.9; 1993 - $18.0; LTM as of 6/30/94 - $29.8. 1995 estimates from appraisal information. (2) Includes media properties at 9.5x LTM cash flow of $69.5 million as of 6/30/93, and equity value in American Mobile Satellite of $33.5 million as of 12/13/93. (3) Excludes $1,238 million of preferred stock exchangeable for LIN's 49.99% interest in Philadelphia, which is assumed to be redeemed. (4) Includes option proceeds from options outstanding at an average exercise price of $49.51. (5) Includes TV assets subsequently spun-off. Estimated range after backing out approximately $12 per share of TV equates to $105.77 - - $125.03 per share. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Implied Value of LIN as Part of AT&T's Acquisition of McCaw (Assuming No Difference in Value between McCaw and LIN) (cont'd) (in thousands, except per share and per POP values) Transaction Announcement (8/13/93) Based on Contributed POPs: McCaw Proportionate POPs (1) 59,161 LIN Proportionate POPs in McCaw (1) 12,708 McCaw Cellular Enterprise Value $16,730,720 LIN Proportionate Enterprise Value in McCaw $3,593,735 LIN Implied Cellular Enterprise Value $6,911,030 Implied Value per LIN POP $282.80 Plus: Value of LIN Non-Cellular Assets (2) $694,062 LIN Total Implied Enterprise Value $7,605,092 Less: LIN Net Debt (6/30/93) (3) (4) ($1,529,779) Implied LIN Equity Value $6,075,313 LIN Fully Diluted Shares 52,710 Implied LIN Value per Share (5) $115.26 Premium to Market (8/13/93) 12.7% Based on Contributed Subscribers: McCaw Proportionate Subscribers (6) 1,558,000 LIN Proportionate Subs. in McCaw (6) 379,600 McCaw Cellular Enterprise Value $16,730,720 LIN Proportionate Enterprise Value in McCaw $4,076,368 LIN Implied Cellular Enterprise Value $7,839,169 Implied Value per LIN POP $320.78 Plus: Value of LIN Non-Cellular Assets (2) $694,062 LIN Total Implied Enterprise Value $8,533,231 Less: LIN Net Debt (6/30/93) (3) (4) ($1,529,779) Implied LIN Equity Value $7,003,452 LIN Fully Diluted Shares 52,710 Implied LIN Value per Share (7) $132.87 Premium to Market (8/13/93) 29.9% (1) Includes all proportionate POPs including McCaw's 52% POPs of LIN, and excludes LIN's Philadelphia POPs. Source: DLJ - Spring 1993 for transaction announcement. (2) Includes media properties at 9.5x LTM cash flow of $69.5 million as of 6/30/93, and equity value in American Mobile Satellite of $33.5 million as of 12/13/93. (3) Excludes $1,238 million of preferred stock exchangeable for LIN's 49.99% interest in Philadelphia, which is assumed to be redeemed. (4) Includes media properties at 9.5x LTM cash flow of $71.5 million as of 6/30/94, and equity value in American Mobile Satellite of $27.1 million as of 9/19/94. (5) Includes TV assets subsequently spun-off. Estimated range after backing out approximately $12 per share of TV equates to $103.26 per share. (6) Subscriber figures from analyst reports. (7) Includes TV assets subsequently spun-off. Estimated range after backing out approximately $12 per share of TV equates to $120.87 per share. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Summary of Other Precedent Transactions Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Comparison of the Calculation of EBITDA Multiples in Recent Precedent Transactions * The main difference between Morgan Stanley and Bear Stearns/Lehman Bros. is the use of absolute vs. relative acquisition multiples. * Morgan uses an absolute year reference (e.g., 1995 EBITDA), while Bear Stearns/Lehman Bros. use "next year's" cash flow which is relative to the year of the acquisition. * Thus Bear Stearns/Lehman Bros. provide a Price/1994E EBITDA multiple for the SBC/Associated transaction and a Price/1995E EBITDA multiple for the GTE/Contel transaction, while defining both to be a multiple to "next year's" cash flow. Morgan Stanley Bear Stearns/Lehman Bros. ------------------------------ ------------------------- Date Price 1994E Price 1995E Price/1994E Price 1995E Announced Buyer/Bidder Seller/Target EBITDA EBITDA EBITDA EBITDA - --------- ------------ ------------- ----------- ---------- ------------ ------------- Sep. 1994 GTE Contel Cellular 19.0x 13.0x 25.7x 18.0x(1) Feb. 1994 SBC Associated Communications Communications 17.0x 13.0x 20.9x N.A.(2) Nov. 1993 SBC GET Communications (Dallas Cellular) 13.0x 10.0x N.A. N.A.(3) (1) Differences between the multiples are explained by the different sources for EBITDA estimates, and also by the adjustments for non-consolidated POPs, the EBITDA for which is included on a proportionate basis. Bear Stearns/Lehman Bros. use Kagan Wireless Telecom Investor for their EBITDA estimates. Morgan Stanley's EBITDA source is not disclosed. (2) The different multiples can be accounted for by the differing assumptions used in projecting historical Associated EBITDA numbers. Morgan Stanley uses the 7/29/94 Associated Merger Proxy document, which explicitly specifies the pro-forma income of the cellular businesses sold to SBC, and assumes a 25% growth between 1994 and 1995; Bear Stearns/Lehman Bros. use the 1993 10-K as their source, exclude non-cellular assets and assume a 50% growth rate between 1993 and 1994. (3) Morgan Stanley estimates EBITDA by assuming revenues 150% LIN's management projected Dallas market revenues, and a 35% EBITDA margin. Bear Stearns/Lehman Bros. looked at per POP values only. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Selected Recent Cellular Transactions - EBITDA Multiples Date Buyer/ Seller/ Purchase LTM 1994 1995E Price/LTM Price/1994 Price/1995 Announced Market(s) Bidder Target Price EBITDA EBITDA EBITDA EBITDA E EBITDA E EBITDA Sep. 1994 GTE Contel $456.68(2) 18.0(3) 21.0(3) 36.1(3) 25.4x 21.7x 12.7x (1) Includes Cellular 19.5MM adjusted (acquired MSA POPs an and 4.4MM additional adjusted 10% RSA POPs. stake) Feb. 1994 Buffalo, SBC Associated $680.00(4) 23.6(5) 34.2(5) 42.7(5) 28.8x 19.9x 15.9x NY (75.0%) Communi- Communi- Rochester, cations cations NY (85.7%) Albany, NY Pittsburgh, PA (35.7%) San Francisco (3.0%) Nov. 1993 Dallas, TX SBC GTE $120.00 7.4(6) 9.4 (6) 11.9 (6) 16.2x 12.8x 10.1x Communi- (Dallas cations Cellular) (acquired an additional 10% stake) Aug. 1993 Nationwide AT&T McCaw $16,730.72(7) 660.1(8) 925.8(8) 1,283.4(8) 25.3x 18.1x 13.0x markets Cellular including: Dallas TX, San Francisco CA, Miami FL (*) Notes on the following page. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Selected Recent Cellular Transactions - EBITDA Multiples NOTES (1) Transaction is still pending. Closing is subject to the consummation of the Bell Atlantic/NYNEX cellular joint venture, which required the sale of these properties. (2) Purchase offer consisted of a cash offer of $25.50 per share for all 9.97MM outstanding Class B shares (10% of outstanding stock). The implied enterprise purchase price (for 100% of the stock) includes 2.02 billion of net debt, as per the 9/30/94 Contel 10-Q. The purchase price shown is 10% of this adjusted total price. (3) LTM EBITDA is as of 9/30/94. 1994 EBITDA is the 12/31/94 actual fiscal EBITDA. 1995E EBITDA is based on management projections, as listed in the 1/31/95 Contel Merger Proxy. All EBITDA numbers are multiplied by the proportionate ratio of total to consolidated POPs of 1.43 (source: 1/30/95 Merger Proxy). to derive total cellular EBITDA. EBITDA was also adjusted for minority interest to reflect average 94.1% ownership in consolidated EBITDA. The EBITDA numbers presented represent 10% of total EBITDA. (4) Purchase price includes the assumption of $128MM in liabilities. In connection with the transaction, Associated shareholders received pro-rated shares of a new company to be formed with the non-cellular assets that were not sold to SBC (these include holdings in TCI, Liberty Media, General Communications, Republic Pictures, as well as Mexican cellular (2.1MM POPs) operations. (5) LTM 12/31/93 historical EBITDA of merged cellular assets ($19.7MM) taken from the 7/29/94 Associated Merger Proxy. Proportional EBITDA based on ratio of total POPs to consolidated POPs of 1.33, and 90.2% average proportionate interest in consolidated cellular EBITDA. 1994 EBITDA assumes a 45% growth rate over 1993. 1995 EBITDA assumes a 25% growth rate over 1994 EBITDA. (6) EBITDA numbers are based on LIN actual and management base case revenue projections for its Dallas cellular market. Calculations assume revenues 135% of LIN's Dallas market revenues, and a 40% EBITDA margin. (SBC has 60% market share compared to LIN's 40%, but offers 10% lower prices). The EBITDA numbers represent 10% of total EBITDA. (7) Net debt calculation excludes $1,238 million of preferred stock exchangeable for LIN's 49.99% interest in Philadelphia, which is assumed to be redeemed. Purchase price includes McCaw's estimated 472,500 pagers at $500 a pager, 52% of 9.5x LTM LIN's media properties cash flow of $69.5 million as of 6/30/93, McCaw's direct and indirect interest in American Mobile Satellite (AMSAT) of 8.85% and AMSAT's equity value of $506.4 million as of 12/31/93. (8) Proportionate cellular OCF values from McCaw 10-K and 10-Q. Excludes Philadelphia (in millions): LTM as of 6/30/93 - $13.9; 1993 - $18.0; LTM as of 6/30/94 - $29.8. Philadelphia estimates from LIN appraisal information, except for OCF of LTM as of 6/30/94, which is based on pro rata CAGR from 1993 to 1994. 1994 and 1995 OCF estimates from research analyst reports. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------------------------------------------- Summary of Per POP Values in Selected Cellular Transactions Date Aggregate Purchase Price Per Announced Acquiror Seller Type of Deal Price ($MM) POP - --------- -------- ------ ------------ ------------------ --------- Nov. 94 SNET Bell Atlantic/NYNEX Acquisition $450 $196(1) (Rhode Island, Massachusetts and Connecticut markets) Oct. 94 CGE SBC Communications (Washington D.C.) Joint Venture $215 $295(2) Sep. 94 GTE Contel Cellular 10% Stake $457 $191 Jul. 94 AirTouch US WEST Joint Venture $13,250 $250(3) Jun. 94 Bell Atlantic NYNEX Joint Venture $13,000 $236(4) Feb. 94 SBC Communications Associated Communications Acquisition $680 $189 Nov. 93 SBC Communications GTE (Dallas Cellular) 10% Stake $120 $286 Jan. 90 McCaw Cellular Cellular Communications (Dallas) Acquisition $60 $276 Dec. 89 McCaw Cellular LIN Broadcasting 42.2% Stake $3,775 $321(5) Oct. 89 LIN Broadcasting Metromedia (New York Cellular) 48% Stake $1,881 $275 (1) Purchase price and per POP calculation based on the 11/22/94 SNET 8-K. (2) CGE invested $215MM (excluding non-cellular investments) for a 10% ownership stake in SBC's Washington D.C./Baltimore cellular operations. Concurrently SBC invested $626MM to gain a 10% stake in CGE's cellular subsidiary in France, SFR, as well as minority ownership positions in other communications businesses controlled by CGE, including mobile data and paging services. (3) Joint venture combined all of the domestic cellular assets of US WEST and AirTouch. Markets comprise 9 of the top 20 including: Los Angeles, San Francisco, Detroit, Atlanta, Seattle and Denver. US WEST owns 30% and AirTouch owns 70% of the joint venture. (4) Joint venture combined all of the domestic cellular assets of NYNEX and Bell Atlantic. Markets comprise 7 of the top 20 including: New York, Boston, Philadelphia, Baltimore and Washington, D.C. Bell Atlantic owns 62.35% and NYNEX owns 37.65%. (5) Based on average per POP value derived from alternative valuation analyses. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Cellular Acquisitions - Per POP Implied Valuation Date Purchase POP's Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) POP* - --------- -------- ------------ ------------ ----------- ------ --------- Nov. 94(1) Providence, RI SNET Bell Atlantic/NYNEX $450(2) 2.300(2) $196 New Bedford, MA (Bell Atlantic) Pittsfield, MA (80.0%) 8 other markets in CT, MA (16.1%) (NYNEX) Oct. 1994 Washington D.C./Baltimore Cie Generale(3) SBC Communications (3) $215(4) 0.730 $295 markets (10% ownership) des Eaux (CGE) Sep. 1994 Includes 19.5MM adjusted GTE Contel Cellular $457(5) 2.390(6) $191 MSA POPs and 4.4MM (acquired an additional adjusted RSA POPs 10% stake) Jul. 94 Covers 9 to the top 20 U.S. U.S. WEST AirTouch markets including (Joint Venture (Joint Venture - owns 70%) $13,250(7) 53.000(7) $250 Los Angeles, San Francisco Detroit, Atlanta, Seattle, and Denver * All price per POP calculations exclude non-cellular assets. (1) The closing of this transaction is subject to the consummation of the Bell Atlantic/NYNEX cellular joint venture. (2) Purchase price and per POP calculation based on the 11/22/94 SNET 8-K. (3) In a concurrent transaction, SBC communications invested $626MM to gain a 10% stake in CGE's cellular subsidiary in France, SFR, as well as minority ownership positions in other communications businesses controlled by CGE, including mobile data and paging services. (4) Purchase price excludes $32MM of net other investments with CGE made in SBC, as per the 10/11/94 SBC Investor Briefing report. (5) Purchase offer consisted of a cash offer of $25.50 per share for all 9.97MM outstanding Class B shares (10% of outstanding stock). The implied total purchase price (for 100% of outstanding stock) includes 2.02 billion of net debt, as per the 9/30/94 Contel 10-Q. (6) Adjusted to reflect GTE's 10% ownership. (7) Estimated, based on news articles. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Cellular Acquisitions - Per POP Implied Valuation (Cont'd) Date Purchase POP's Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) POP* - --------- -------- ------------ ------------ ----------- ------ --------- Jun. 94 Covers 7 of the top 20 Bell Atlantic NYNEX $13,000(1) 55.000(1) $236 U.S. markets including (Joint Venture (Joint Venture New York, Boston, - owns 62.35%) - owns 37.65%) Philadelphia, Baltimore and Washington D.C. Feb. 1994 Buffalo, NY (75.0%) SBC Communications Associated Communications $680(2) 3.600 $189 Rochester, NY (85.7%) Albany, NY Pittsburgh, PA (35.7%) San Francisco (3.0%) Nov. 1993 Dallas, TX SBC Communications GTE $120 0.420 $286 (acquired an additional (Dallas Celllular 10% stake) Aug. 1993 Nationwide markets AT&T McCaw Cellular $16,731 59.161 $283(3) include: Dallas, TX, San Francisco, CA, Miami, FL * All price per POP calculations exclude non-cellular assets. (1) Estimated, based on news articles. (2) Purchase price includes the assumption of $128MM in liabilities. In connection with the transaction, Associated shareholders received pro-rated shares of a new company to be formed with the non-cellular assets that were not sold to SBC. These assets include holdings in TCI, Liberty Media, General Communications, Republic Pictures, as well as Mexican cellular with 2.1MM POPs. (3) Purchase price includes McCaw's estimated 472,500 pagers at $500 a pager, 52% of 9.5x LTM LIN's media properties cash flow of $69.5 million as of 6/30/93, McCaw's direct and indirect interest in American Mobile Satellite (AMSAT) of 8.85%, AMSAT's equity value of $506.4 million as of 12/31/93 and license for 1.7 million Hong Kong POPs at $10 a POP. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Cellular Acquisitions - Per POP Implied Valuation (Cont d) Date Purchase POP's Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) POP* - --------- -------- ------------ ------------ ----------- ------ --------- Aug. 1992 Albany, NY Associated McCaw Cellular $90(1) 0.689(2) $131 Rochester, NY Communications Glens Falls, NY May 1992 Nationwide; Markets Sprint Centel $4,412(3) 16.570 $115-$135 include: New York, NY, Chicago, IL, Houston, TX Oct. 1991 Omaha Lincoln Centel $36(4) 16.570 $214 (50% ownership in JV) Telecommunications Sept. 1991 Wisconsin Bell South McCaw Cellular $410(5) 2.220(6) $184 Illinois Indiana * All prices per POP calculations exclude non-cellular assets. (1) Includes assumption of $7.5 million in debt. (2) The parties also formed a joint venture, with McCaw donating its 50% interest in Buffalo and Associated its 6% interest in San Francisco/San Jose. (3) Includes $1,363 billion in net debt. Assuming a value of $1,300 to $1,500 per access line for Centel's 1.599 million access lines and the market value ($102.8 million) of its holdings in Rochester Telephone, Centel's cellular assets have an implied value of $115 to $135 per POP. (4) Purchase price represents $11.9 million in cash and the assumption of a $23.8 million note. (5) Includes an agreement to let McCaw out of a $50 million obligation originally incurred by Graphics Scanning and due to BellSouth. (6) BellSouth acquired 2.5 million POPs from McCaw and gave McCaw its interest in Rochester (280,000 POPs), resulting in a net gain of 2.22 million POPs. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Cellular Acquisitions - Per POP Implied Valuation (Cont d) Date Purchase POP's Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) POP* - --------- -------- ------------ ------------ ----------- ------ --------- Sept. 1991 Milwaukee, WI Bell South Graphic Scanning $310(1) 1.153 $178(2) Indianapolis, IN Terre Haute, IN Bloomington, IN Sept. 1991 18 MSAs nationwide, Bell Atlantic Metro Mobile $2,448(3) 11.530 $206 including: Phoenix, AZ Hartford, CT Providence, RI Bridgeport, CT New Haven, CT Charlotte, NC Tucson, AZ Aug. 1991 Wichita, KN Pacific Telesis McCaw Cellular $100 0.619 $162 Topeka, KN Aug. 1991 Ohio, Michigan MSAs Pacific Telesis Cellular Communications $90(4) 0.476 $189 (5% interest) July 1991 Waco, TX McCaw Cellular Crowley Cellular $107 0.609 $176 Daytona Beach, FL * All price per POP calculations exclude non-cellular assets. (1) Comprised of $168 million in cash and $142 million in Graphic Scanning liabilities assumed by BellSouth. (2) Assumes a value of $18.9 million for Graphic Scanning's 315,000 paging subscribers and $86 million for its UK cellular and paging assets (analyst estimates). (3) Includes liquid petroleum business valued at approximately $70 MM. Purchase price represents equity valued at $1,623 million and the assumption of $825 million in debt. (4) Part of larger transaction, including the formation of a joint venture with 8.86 million POPs. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Cellular Acquisitions - Per POP Implied Valuation (Cont d) Date Purchase POP's Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) POP* - --------- -------- ------------ ------------ ----------- ------ --------- June 1991 Philadelphia, PA Comcast Cellular Metromedia $1,110 5.155 $198(1) Long Branch, NJ New Brunswick, NJx May 1991 St. Louis MSA Ameritech CyberTel $512 2.815 $159(2) surrounding RSAs Mar. 1991 35 cities in Midwest and U.S. West U.S. West NewVector $476(3) 16.901 $148 Western U.S. including Minneapolis-St. Paul, San Diego and Denver Mar. 1991 Athens, GA Lexington, KY 3 RSAs around Atlanta Bell South GTE Mobilnet $102 0.903 $111 Jan. 1991 Minority interests in 20 markets in seven states Centel Rochester Telephone(4) $35 0.435 $79 Oct. 1990 Springfield, IL Southwestern Bell Crowley Cellular N.A. 0.613 N.A. Decatur, IL Bloomington-Normal, IL Champaign-Urbana, IL * All price per POP calculations exclude non-cellular assets. (1) Purchased based on $310 MM in cash, $250MM in cash or Comcast Class A stock and Comcast Cellular participating preferred stock (valued by analysts at $550 MM). Assuming a range of 6.0x-8.0x EBITDA (estimated by analysts at $12.8 MM) for Guest Informant division and 15% interest in WOTV purchased, the value of Metromedia's cellular assets is $196-%$200 per POP. (2) Assumes a value of $37.5 million for 750,000 pagers and $26 million for non-compete agreement and net operating loss (NOL) carry forward. (3) Reflects U.S. West's acquisition of the remaining 19% of NewVector that it did not already own. (4) Assuming a range of 8.75x-9.75x EBITD, or $1,800-$2,000 per access line (as estimated by analysts) for the 85,000 Centel access lines transferred to Rochester, less the cash and equity (based on RTC's closing stock price on 4/3/91) given up by Rochester, the value of Rochester's cellular assets being transferred is $60-$99 per POP. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Cellular Acquisitions - Per POP Implied Valuation (Cont d) Date Purchase POP's Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) POP* - --------- -------- ------------ ------------ ----------- ------ --------- Sept. 1990 51 RSAs nationwide, U.S. Cellular Telephone and Data Systems $176 2.500 $70 in states including: Florida Iowa Missouri North Carolina Texas Virginia July 1990 67 cities nationwide including GTE Contel Cellular(1) $3,901 22.386 $174 majority and minority (Contel Corp.) interests. Among the markets covered were: Los Angeles, San Francisco, Washington DC, Minneapolis-St. Paul July 1990 Cleveland, Cincinnati, Pacific Telesis Cellular Communications(2) $1,375 7.253 $184 Columbus, Dayton, Akron, and 5 other OH cities Apr. 1990 Wisconsin PacificCorp North-West Telecom $272(3) 0.575 $176 Apr. 1990 12 MSAs in the Southwest, GTE Providence Journal $710 3.500 $203 including: Raleigh, NC Greensboro, NC Charleston, SC Augusta, GA * All price per POP calculations exclude non-cellular assets. (1) Assuming a range of 3.0x-4.0x EBITD, or $1,200-$1,600 in equity per access line, for Contel telephone operations, and 6.0x-8.0x EBITD for other Contel non-cellular assets, plus a pro rata share of Contel net debt for the non-cellular assets of Contel, and based on GTE's 4/3/91 closing stock price, the price paid for the cellular assets of Contel is $133-$216 per POP. (2) Based on $39/share for initial 5% in 1991 and $60/share MRO price in 1995, adjusted for net debt, implied discounted price is approximately $184 per POP. (3) Assuming a value of $2,000-$2,300 per access line for North-West's $64,500 access lines, and a value (based on analyst estimates) of $32 million for its Cable TV, printing and publishing assets, the value of the cellular assets being transferred is $164-$188 per POP. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Cellular Acquisitions - Per POP Implied Valuation (Cont d) Date Purchase POP's Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) POP* - --------- -------- ------------ ------------ ----------- ------ --------- Mar. 1990 Greensboro-Winston-Salem GTE Providence Journal $700 3.373 $207 Raleigh-Durham Charleston Fayetteville Savannah Lynchburg Jan. 1990 Dallas McCaw Cellular Cellular $60 0.219 $276 Communications, Inc. Communications, Inc. Dec. 1989 New York McCaw Cellular LIN Broadcasting $3,375(1) 24.948 $321 Los Angeles Communications, Inc. Philadelphia Dallas Houston Oct. 1989 New York LIN Broadcasting Metromedia $1,881 6.840 $275 Oct. 1989 13 Southeast markets Contel Cellular Inc. McCaw Cellular $1,300(2) 6.100 $205 Communications, Inc. Mar. 1989 18 Midwestern markets Century Telephone Universal Telephone $23 0.410(3) $56(4) Jan. 1989 Numerous regional clusters British Telecom plc McCaw Cellular $1,544 50.388 $139(5) Communications, Inc. * All price per POP calculations exclude non-cellular assets. (1) For a 42.2% interest in LIN Broadcasting. (2) Analyst estimates. (3) Cellular assets comprised of 130,000 MSA POPs and 280,000 RSA POPs. (4) Assuming a range of $1,800-$2,150 for Universal's 48,000 access lines, Universal's cellular assets are worth $36-$77 per POP. (5) Acquisition of 22% minority position; BT is barred from obtaining control position. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Cellular Acquisitions - Per POP Implied Valuation (Cont d) Date Purchase POP's Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) POP* - --------- -------- ------------ ------------ ----------- ------ --------- Mar. 1988 New Brunswick Comcast American Cellular Network $209 1.700 $122 Long Branch Trenton Princeton Atlantic City Harrisburg Wilmington Mar. 1988 16 states including: Centel United Telecom's $797 7.200 $105 Ohio United TeleSpectrum Indiana North Carolina South Carolina Texas Feb. 1988 Los Angeles BellSouth Mobile Communications $727 5.300 $96 Gary/Hammond Houston, East Chicago Milwaukee, Richmond, Indianapolis,Jackson Rochester, Bakersfield Honolulu, Mobile July 1987 Miami/Ft. Lauderdale McCaw Cellular Washington Post $230 3.000 $77 West Palm Beach Communications, Inc. 1987 Orlando McCaw Cellular Maxcell Telecom Plus $157 9.000 $17 Tampa Communications, Inc. Charisma Communications Jacksonville Memphis Louisville Nashville Birmingham * All price per POP calculations exclude non-cellular assets. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Cellular Acquisitions - Per POP Implied Valuation (Cont d) Date Purchase POP's Price Per Announced Market(s) Buyer/Bidder Seller/Target Price ($MM) (MM) POP* - --------- -------- ------------ ------------ ----------- ------ --------- Dec. 1986 Detroit Pacific Telesis Graphic Scanning $316 6.900 $46 Toledo Rapid-American Grand Rapids Western Union Flint Washington Post Lansing-E. Lansing 1986 Chicago/Gary Southwestern Bell Metromedia $746 18.200 $41(1) Boston/Worcester DC/Baltimore 1986 San Diego U.S. West NewVector Communications Industries $46 2.300 $20 July 1985 Pittsburgh McCaw Cellular MCI $120 6.900 $17(2) Minneapolis Communications, Inc. Denver Kansas City San Antonio Sacramento Salt Lake City Fresno March 1985 San Francisco/ McCaw Cellular Graphic Scanning $37 2.300 $16 San Jose Communications, Inc. Seattle/Tacoma Portland Sacramento San Antonio * All price per POP calculations exclude non-cellular assets. (1) Price per POP actually lower, information on non-cellular assets not available. (2) Price per POP based on allocation among parties; sale included non-cellular assets. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Selected Public Company Trading Analysis Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Trading Analysis of Selected Pure Cellular Companies ($MM, except per POP Values) Estimated Adjusted Estimated Market Adjusted Estimated Estimated Adjusted Market Value Value of Market Implied Of Cellular Operations/ Non-U.S. Value of Enteprise ---------------------------------- LTM LTM LTM and Non- Domestic Domestic Value per LTM LTM 1994E 1995E Cellular Cellular Cellular Market Market Cellular Cellular Pops Domestic Cellular Cellular Cellular Cellular EBITDA EBITDA EBITDA Value(1) Value(2) Operations Operations (MM) Pop Sales EBITDA EBITDA EBIDTA per Pop per Pop per Pop ------- ------- ---------- ---------- ------- --------- -------- -------- -------- -------- -------- -------- ------- LIN Broad- casting(3) $6,733 $8,293 $118 $8,174 25.7 $318 8.8x 21.0x 21.0x 15.3x $15.16 $15.16 $20.79 AirTouch Comm.(4) $13,388 $12,34 $5,000 $7,348 34.9 $211 6.4x 15.5x 15.3x 11.2x $13.56 $13.73 $18.83 Cellular Comm.(5) 2,004 2,192 0 2,192 7.9 279 8.1 26.1 22.4 16.4 10.68 12.44 17.04 Vanguard Cellular(6) 979 1,278 19 1,260 7.0 180 7.7 37.4 28.3 16.0 4.83 6.37 11.29 Note: Figures are for publicly available LTM data available for each company, except for LIN figures provided by LIN management. Estimates from analyst reports. (1) Market values based on 3/3/1995 closing stock price: Air touch $27.13; CCI'A' $50.00; CCI Convertible Preferred $49.75; LIN $129.00; Vanguard $25.25. (2) Defined as market value plus debt, preferred stock and minority interests less cash and equivalents. (3) Non-cellular assets consist of 1.656 million shares of American Mobile Satellite (equity value of $30.0 million as of 3/3/1995), and television stations at 9.5x 1995E EBITDA of $9.30 million. Equity value includes option spread on 1.660 million stock options outstanding at an average exercise price of $85.46 as of 1/31/95 as provided by LIN management. Operating data based on proportionate ownership. (4) Non-cellular assets consist of international operations and paging and other assets at $5,000MM. (5) Market values assume conversion of convertible preferred stock related to the AirTouch transaction. Operating data based on CCI's proportional ownership interest in cellular operations, not consolidated financials. (6) Vanguard's non-cellular operations are based on 2.5 million share holdings of Geotek Communications, and a $7.44 share price of Geotek as of 3/3/1995. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Comparison with AirTouch - -- Among the companies considered in the public company trading analysis, AirTouch Communications is arguably the most directly relevant to LIN AirTouch LIN ---------------------- ----------------------- Market Enterprise Value(1) $12,348 million $8,293 million Major Domestic Markets Los Angeles, San Francisco, New York, Los Angeles, San Diego, Atlanta, Detroit, Dallas, Houston Cleveland, San Jose, Sacramento, Cincinnati, Kansas City No. of Domestic POPs 34.9 million 25.7 million - -- The following is a summary comparison of AirTouch and LIN: % of POPs in Top 10 Markets 33% 98% 1994E Domestic Cellular EBITDA/POP(2) $13.73 $15.16 1994E LIN EBITDA/POP Premium to AirTouch 10.0% 1995E Domestic Cellular EBITDA/POP(2) $18.83 $20.79 1995E LIN EBITDA/POP Premium to AirTouch 10.4% - -- The following are AirTouch's domestic per POP and EBITDA trading multiples (after backing out a range of estimates of international and other asset value) AirTouch ----------------------------------------- Market Domestic Cellular Enterprise Value Per Domestic POP(1) (2) $196 - $218 Market Domestic Cellular Enterprise Value/ 14.3x - 15.9x 1994E Domestic Cellular EBITDA(1) (2) Market Domestic Cellular Enterprise Value/ 10.4x - 11.6x 1995E Domestic Cellular EBITDA(1) (2) (1) Based on closing stock prices as of 3/3/95: AirTouch - $27.125; LIN - $129.00. (2) Based on AirTouch's 1994E domestic cellular EBITDA of $479 million and 1995E domestic cellular EBITDA of $657 million from analyst reports; LIN's 1994 cellular EBITDA of $390 million and 1995E EBITDA of $535 million as provided by LIN management. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Comparison with AirTouch (cont'd) (in millions) AirTouch's International and Other Assets International Cellular POPs (million) POPs (million) Germany 23.2 Russia 5.3 Japan 10.4 Sweden 4.4 Spain 6.3 Portugal 2.4 Italy 5.9 Belgium 2.0 South Korea 5.0 Total International POPs 64.9 million International Paging 111,000 subscribers Domestic Paging 1,270,000 subscribers Other Investments Qualcomm, IDC Long Distance, Air-to-Ground Service, SMR operations, KICC Market Equity Value (3/3/1995) $13,388 1994E Domestic Cellular EBITDA (1) $479 Net Debt (9/30/94) ($1,040) 1995E Domestic Cellular EBITDA (1) $657 Market Enterprise Value $12,348 No. of Domestic POPs (million) 34.9 Sensitivity of AirTouch's Trading Analysis to Valuation of International and Other Assets Range of Implied Implied Domestic Cellular Enterprise Value / International and Other Domestic Cellular Domestic 1994E Domestic 1995E Domestic Asset Values Enterprise Value POPs Cellular EBITDA Cellular EBITDA $4,750 $7,598 $218 15.9x 11.6x $5,000 $7,348 $211 15.3x 11.2x $5,250 $7,098 $203 14.8x 10.8x $5,500 $6,848 $196 14.3x 10.4x AirTouch started trading publicly in April, 1994 (1) Source: Analyst reports. Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Indexed Price History of Selected Companies (Weekly from April 1, 1994 - March 3, 1995) Date 4/8/94 5/6/94 6/3/94 7/1/94 8/5/94 Stock Price LIN Broadcasting 100 100 100 100 106 106 110 112 113 114 114 110 114 114 119 119 119 120 AirTouch Communications 100 109 105 113 110 111 113 111 118 116 111 110 110 114 113 119 120 114 Date 9/2/94 10/7/94 11/4/94 12/2/94 Stock Price LIN Broadcasting 121 123 126 127 129 132 133 132 129 129 129 130 131 133 133 132 135 133 AirTouch Communications 122 122 125 130 130 132 128 132 126 134 133 139 128 129 128 121 124 121 Date 1/6/95 2/3/95 3/3/95 Stock Price LIN Broadcasting 135 138 127 126 128 131 131 132 132 123 123 123 AirTouch Communications 128 128 134 134 132 128 126 129 129 125 128 125 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Indexed Price History of Selected Companies (Weekly from April 1, 1994 - March 3, 1995) Date 4/8/94 5/6/94 6/3/94 7/1/94 8/5/94 LIN Broadcasting 100 100 100 100 106 106 110 112 113 114 114 110 114 114 119 119 119 120 Cellular 100 102 100 102 103 103 106 103 105 103 107 106 108 107 111 116 117 115 Communications (Class A) Vanguard Cellular 100 107 104 111 111 112 113 110 114 114 116 117 112 122 121 121 127 126 AirTouch Communications 100 109 105 113 110 111 113 111 118 116 111 110 110 114 113 119 120 114 Date 9/2/94 10/7/94 11/4/94 12/2/94 LIN Broadcasting 121 123 126 127 129 132 133 132 129 129 129 130 131 133 133 132 135 133 Cellular Communications (Class A) 116 121 119 118 115 120 117 119 121 120 119 119 119 120 120 115 113 112 Vanguard Cellular 131 132 138 137 137 146 142 133 132 138 140 137 137 143 143 135 135 129 AirTouch Communications 122 122 125 130 130 132 128 132 126 134 133 139 128 129 128 121 124 121 Date 1/6/95 2/3/95 3/3/95 LIN Broadcasting 135 138 127 126 128 131 131 132 132 123 123 123 Cellular Communications (Class A) 112 115 120 115 113 116 113 114 109 112 113 112 Vanguard Cellular 125 127 130 132 128 128 129 132 137 138 134 126 AirTouch Communications 128 128 134 134 132 128 126 129 129 125 128 125 Wasserstein Perella & Co. LIN BROADCASTING - ----------------------------------------------------- Indexed Price History of Selected Companies (Weekly from January 1, 1991 - February 28, 1995) Date 1/31/91 6/30/91 12/31/91 6/30/92 LIN Broadcasting 100 102 97 105 104 90 104 112 113 110 96 110 114 120 114 112 103 98 Vanguard Cellular 100 116 129 120 112 103 106 129 141 154 129 141 147 156 148 134 132 128 Cellular Communications (Class A) 100 105 105 115 107 102 112 104 102 116 115 125 121 112 118 115 115 111 Date 12/31/92 6/30/93 12/31/93 LIN Broadcasting 107 103 113 103 120 117 120 126 128 136 149 152 154 181 177 174 169 169 Vanguard Cellular 125 115 108 106 142 138 116 114 125 117 123 136 141 168 151 166 152 151 Cellular Communications (Class A) 119 112 112 107 109 115 105 117 126 125 131 129 134 153 148 157 145 155 Date 6/30/94 12/31/94 LIN Broadcasting 178 171 165 162 180 184 192 205 213 211 220 205 213 198 Vanguard Cellular 164 160 150 170 166 170 195 217 203 225 205 199 195 201 Cellular Communications (Class A) 150 160 147 150 151 159 172 176 175 176 165 177 166 168 LIN BROADCASTING Discussion of Potential Third Party Purchasers and Alternatives Wasserstein Perella & Co. LIN BROADCASTING Summary Observations Wasserstein Perella & Co. LIN BROADCASTING Potential Third Party Purchasers - -- The following is a summary list of potential third party purchasers/investors for all or part of LIN. The list is not intended to be exhaustive but rather representative of the potential third party purchasers Wireless Providers/ Long Distance Telcos Service Providers Foreign Other - ----------------- ----------------- ------------------ ---------------- AirTouch (1) MCI Bell Canada International EDS ALLTEL Sprint British Telecom General Electric Ameritech LDDS Cable and Wireless TCI Bell Atlantic (1) Compagnie Generale des Eaux Time Warner BellSouth Deutsche Telekom Craig McCaw Comcast France Telecom Financial Buyer GTE(2) NTT NYNEX (1) Singapore Telecom Pacific Telesis STET SBC(2) Telefonica de Espana SNET Vodafone TDS/U.S. Cellular US WEST (1) - -------------------------- (1) AirTouch/US WEST/Bell Atlantic/NYNEX have a joint venture agreement that prohibits the parties from owning competing properties. (2) GTE and SBC have a "B side" cooperation agreement in Dallas and Houston. Wasserstein Perella & Co. LIN BROADCASTING Potential Third Party Purchasers and Alternatives - -- In assessing the feasibility and attractiveness of a transaction or transactions with one or more parties we have taken into account, among other things: (A) Tax considerations (e.g. corporate level treatment of potential multiple party transactions); (B) MFJ considerations (e.g. AT&T ownership of RBOC securities); (C) FCC regulations (e.g. foreign ownership restrictions): and; (D) Antitrust issues (e.g. "A" side, "B" side overlaps) - -- WP&Co was not authorized to, and was expressly asked by AT&T/McCaw and the Independent Directors of LIN not to, contact any third parties with respect to whether or at what price any third party might be interested in an acquisition of LIN - -- WP&Co. has noted that because LIN is an approximately 52% owned subsidiary of McCaw which in turn is a subsidiary of AT&T, "pooling of interests" accounting is not possible. We have also noted that certain transactions would be subject to rights of first refusal - -- WP&Co reviewed with Bear Stearns/Lehman Brothers and Morgan Stanley the views of these firms on potential purchasers Wasserstein Perella & Co. LIN BROADCASTING Cellular and Potential PCS Overlaps Conflicted Cellular Market Potential Conflicted PCS Markets(1) AirTouch Los Angeles/New York(5) Dallas/Houston(2) Ameritech None None Bell Atlantic New York/Los Angeles(5) Dallas/Houston(2) BellSouth None(3) None GTE Houston/Dallas(4) None NYNEX New York/Los Angeles(5) Dallas/Houston(2) Pacific Telesis None Los Angeles SBC Dallas None U S WEST Los Angeles(5) Dallas/Houston(2) (1) Based on PCS bid submissions through March 1, 1995. (2) As per most recent Primeco bid. (Primeco is a joint venture formed by NYNEX/Bell Atlantic/US West/AirTouch.) (3) BellSouth owns 60% of the Los Angeles "A" side market and 44% of the Houston "A" side market but shares control in both markets with LIN. (4) GTE holds a minority interest in Dallas. (5) Conflict through AirTouch/US WEST/Bell Atlantic/NYNEX venture. Wasserstein Perella & Co. LIN BROADCASTING Potential Third Party Purchasers and Alternatives - -- In addition to potential acquisition of 100% of the stock of LIN by a single buyer we considered the potential for the break up of LIN through separate transactions and the potential of consortium bids - -- The following table outlines properties selected potential bidders may be able to acquire (subject to the pending PCS auctions): Potential Bidder NY LA Houston Dallas Ameritech X X X X BellSouth X X X X GTE X X X MCI X X X X SBC X X X Pacific Telesis X X X X Sprint X X X X AirTouch/US West/Bell Atlantic/NYNEX X X - -- Other potential bidders and purchase strategies exist. The examples above simply attempt to illustrate some of the perceived possibilities - -- Divestiture of small minority interests are assumed for cases in which a potential acquiror would significantly increase its market interest by acquiring LIN s interest for a particular market Wasserstein Perella & Co. LIN BROADCASTING Selected Illustrative Dilution Analysis This section shows estimated pro forma EPS dilution and payout ratio and cash flow coverage effects to a range of possible purchasers of all or part of the assets of LIN. It is not meant to show either the most likely alternative transactions or to exclude other potential structures or transactions. It is included for illustrative purposes only as part of the overall analysis of third party purchasers. Wasserstein Perella & Co. LIN BROADCASTING BellSouth (Buys all of LIN)(1) Price Per LIN Share $105 EPS Dilution (%) Payout Ratio (%) EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 16.9 14.9 12.7 66.8 77.8 67.8 61.4 10.9 10.5 11.9 12.7 50% Cash/ 50% Stock 15.7 13.1 10.7 66.8 76.7 66.4 60.0 10.9 8.0 8.6 9.3 100% Cash 14.3 10.9 8.2 66.8 75.4 64.7 58.9 10.9 6.5 6.9 7.3 Price Per LIN Share $155 EPS Dilution (%) Payout Ratio (%) EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 25.4 23.3 21.1 66.8 86.6 75.2 67.9 10.9 10.6 11.5 12.8 50% Cash/ 50% Stock 24.8 21.7 19.2 66.8 86.0 73.7 66.4 10.9 7.3 7.8 8.3 100% Cash 24.1 19.7 16.8 66.8 85.1 71.8 64.5 10.9 5.5 5.9 6.1 (1) Assumes LIN Management Case including Wireless Data and New Features and excluding Long Distance. Wasserstein Perella & Co. LIN BROADCASTING BellSouth (Buys all assets except NY, Litchfield, Dallas)(1) Price per LIN Share $28.78(2) EPS Dilution (%) Payout Ratio (%) EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 4.6 3.8 2.8 66.8 67.1 60.0 55.2 10.9 11.3 12.2 13.5 50% Cash/ 50% Stock 3.9 3.0 2.0 66.8 67.3 59.5 54.7 10.9 10.3 11.1 12.1 100% Cash 3.2 2.1 1.1 66.8 66.8 59.8 54.2 10.9 9.5 10.2 11.0 Price per LIN Share $44.37(2) EPS Dilution (%) Payout Ratio (%) EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 8.1 7.2 6.2 66.8 70.3 62.2 57.1 10.9 11.4 12.2 13.5 50% Cash/50% Stock 7.2 6.1 5.0 66.8 69.7 61.4 56.4 10.9 9.9 10.6 11.5 100% Cash 6.3 4.8 3.7 66.8 69.0 60.6 55.7 10.9 8.7 9.3 10.0 (1) Assumes LIN Management Case including Wireless Data and New Features and excluding Long Distance. (2) Based on $267/POP at $105 per share and $370/POP at $155 per share. Wasserstein Perella & Co. LIN BROADCASTING EDS (Buys all of LIN)(1) Price per LIN Share $$105 EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 36.3 29.9 23.6 28.1 41.9 33.0 26.4 44.0 17.1 20.6 25.7 50% Cash/50% Stock 45.1 34.9 26.0 28.1 48.7 35.5 27.3 44.0 7.0 8.2 9.2 100% Cash 58.9 42.6 29.8 28.1 64.9 40.2 28.7 44.0 4.4 5.1 5.6 Price per LIN Share $155 EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 52.8 46.3 40.0 28.1 56.5 43.0 33.7 44.0 17.4 20.9 25.9 50% Cash/50% Stock 69.4 57.7 48.0 28.1 87.4 54.6 38.8 44.0 5.6 6.4 7.2 100% Cash 99.6 78.2 62.4 28.1 106.0 53.6 44.0 3.3 3.8 4.2 (1) Assumes LIN Management Case including Wireless Data, New Features and Long Distance. Wasserstein Perella & Co. LIN BROADCASTING GTE (Buys all assets except Houston)(1) Price Per LIN Share $87.83(2) EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 12.5 10.8 8.8 76.5 84.3 76.5 69.5 7.7 7.9 8.4 9.1 50% Cash/ 50% Stock 11.3 9.1 7.0 76.5 83.1 74.1 68.2 7.7 6.7 7.1 7.6 100% Cash 9.8 7.2 5.0 76.5 81.7 73.6 66.7 7.7 5.8 6.2 6.5 Price Per LIN Share $133.12(2) EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 20.1 18.1 16.1 76.5 92.2 83.4 75.5 7.7 7.9 8.4 9.1 50% Cash/ 50% Stock 18.9 16.4 14.2 76.5 90.8 81.7 73.9 7.7 6.3 6.6 7.0 100% Cash 17.4 14.3 11.9 76.5 89.2 79.7 71.9 7.7 5.2 5.5 5.7 (1) Assumes LIN Management Case including Wireless Data, New Features and Long Distance. (2) Based on $267/POP at $105.00 per Share and $378 POP at $155/Share. Wasserstein Perella & Co. LIN BROADCASTING MCI (Buys all of LIN)(1) Price Per LIN Share $105 EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 29.7 26.3 22.6 3.8 4.7 4.1 3.5 17.2 12.2 14.0 17.0 50% Cash/ 50% Stock 29.4 24.7 20.0 3.8 4.7 3.9 3.2 17.2 6.8 7.8 8.8 100% Cash 29.1 22.5 16.3 3.8 4.7 4.0 3.4 17.2 4.7 5.4 6.0 Price Per LIN Share $155 EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 42.3 38.9 35.2 3.8 5.8 5.0 4.2 17.2 12.4 14.2 17.1 50% Cash/ 50% Stock 44.8 39.6 34.5 3.8 6.5 5.1 4.1 17.2 5.7 6.5 7.3 100% Cash 48.9 40.8 33.5 3.8 6.0 5.0 4.1 17.2 3.7 4.2 4.6 (1) Assumes LIN Management Case including Wireless Data and New Features and excluding Long Distance. Wasserstein Perella & Co. LIN BROADCASTING SBC Communications (Buys all except Dallas)(1) Price Per LIN Share $86.14(2) EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 15.4 13.4 11.2 57.6 61.2 54.4 48.2 10.3 9.6 11.1 13.6 50% Cash/ 50% Stock 14.3 11.7 9.2 57.6 60.4 53.4 47.2 10.3 7.2 8.2 9.4 100% Cash 13.0 9.7 6.9 57.6 59.5 52.2 46.0 10.3 5.8 6.4 7.2 Price Per LIN Share $130.57(2)2 EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 24.8 22.2 19.9 57.6 68.4 60.6 53.5 10.3 9.7 11.2 13.7 50% Cash/ 50% Stock 23.7 20.8 18.1 57.6 67.9 59.5 52.3 10.3 6.5 7.2 8.2 100% Cash 23.0 19.0 15.7 57.6 67.2 58.2 50.8 10.3 4.8 5.3 5.8 (1) Assumes LIN Management Case including Wireless Data and New Features and excluding Long Distance. (2) Based on $267/POP at $105.00 per Share and $370/POP at $155.00 per Share. Wasserstein Perella & Co. LIN BROADCASTING Sprint (Buys all of LIN)(1) Price Per LIN Share $105 EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 34.7 30.0 25.1 39.2 58.9 53.0 46.6 6.1 6.6 8.4 9.2 50% Cash/ 50% Stock 33.3 27.6 22.0 39.2 55.8 48.8 42.3 6.1 4.4 5.3 5.7 100% Cash 31.0 24.0 17.5 39.2 57.6 51.2 44.7 6.1 3.3 3.9 4.1 Price Per LIN Share $155 EPS Dilution % Payout Ratio % EBITDA/Interest Payment PF 1995 1996 1997 1994 PF 1995 1996 1997 1994 PF 1995 1996 1997 100% Stock 47.8 43.1 38.2 39.2 73.6 65.2 56.5 6.1 6.7 8.5 9.3 50% Cash/ 50% Stock 49.4 43.2 37.3 39.2 75.9 65.3 55.7 6.1 3.9 4.6 4.9 100% Cash 52.2 43.5 35.9 39.2 80.5 65.7 54.4 6.1 2.8 3.2 3.3 (1) Asumes LIN Management Case including Wireless Data and New Features and excluding Long Distance. Wasserstein Perella & Co. LIN BROADCASTING Selected Recent Analyst Comments on LIN Wasserstein Perella & Co. LIN BROADCASTING Selected Analyst Response to Feb. 15th Appraisal Results Frederick W. Moran, Salomon Brothers Feb. 16, 1995 ..."We find the current situation unacceptable. We are confident that a third appraiser, with an unbiased perspective and fundamental understanding of the cellular industry dynamics, will in the next 20 days appraise LIN Shares at a reasonable value. Given our strong conviction that there is a high probability of the third appraiser rendering a valuation of between $135 and $150 per share....." Dennis Leibowitz, DLJ Feb. 19, 1995 ..."We do not know how one could come up with $105 per share, which is the equivalent of $271 per POP. Furthermore, in August 1993, AT&T agreed to buy McCaw Cellular for 17 times expected 1994 cash flow. If we apply this multiple to our forecast for LIN s 1995 operating cash flow, we believe the company is worth $137 per share. If one took the twelve months following the appraisal, the figure would be higher. We believe, however, that the true value of LIN is higher based on our five-year discounted cash flow analysis, which suggests a 1995 value of $147 to $158 per share..." Harry Kaplan, Goldman Sachs Feb. 16, 1995 ..."One can never be sure, as yesterday s news demonstrates what number any appraiser will arrive at, however we continue to believe the underlying private market value is closer to the independent LIN director s value, and we would view significant weakness in the stock as an attractive opportunity. Goldman private market value $150 -$155 per share..." Susan Passoni, Cowen & Co. Feb. 16, 1995 ... "We believe that the renegotiated price will be materially higher than the $105 set by AT&T and could be well above the $155 set by LIN s banker." Phillips/Long, Smith Barney Feb. 16, 1995 "Our 1995 private market value for LIN is $142 per share; however we believe that AT&T should be buying LIN based on 1996 numbers, which would imply a PMV closer to the mid-$150 range." Wasserstein Perella & Co. LIN BROADCASTING Selected Analyst Response to Feb. 15th Appraisal Results (Cont d) Steven Yanis, Oppenheimer & Co. Feb. 16, 1995 "We believe AT&T will not be able to acquire LIN for a lower EBITDA multiple than AT&T paid for McCaw. At the time McCaw/AT&T deal was announced, AT&T paid 17.5 times forward operating cash flow." Jeffrey Hines, PaineWebber Feb. 16, 1995 ..."Our point PMV on LIN, has been, and remains $140 with upside potential to $152. We believe that $117 - $152 represents plausible range of prices for LIN. We could characterize AT&T s initial bid ridiculously low." Wasserstein Perella & Co. LIN BROADCASTING Appendices Wasserstein Perella & Co. LIN BROADCASTING LIN Cellular Segmented DCF (Management Case) Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPs 15,232 15,384 15,538 15,694 15,850 16,009 16,169 16,331 16,494 16,659 16,826 % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning Subscribers 396.239 595.417 877.405 1,163.309 1,403.030 1,642.373 1,882.510 2,116.963 2,339.063 2,553.487 2,715.081 Gross Sub- scribers Added 316.715 425.000 487.935 470.691 504.293 536.227 558.411 564.323 566.688 540.930 502.982 Deactivations (117.537) (143.012) (202.031) (230.970) (264.950) (296.090) (323.958) (342.223) (352.264) (379.336) (398.495) Annual % Churn (23.71%) (19.42%) (19.80%) (18.00%) (17.40%) (16.80%) (16.20%) (15.36%) (14.40%) (14.40%) (14.40%) Monthly % Churn (1.98%) (1.62%) (1.65%) (1.50%) (1.45%) (1.40%) (1.35%) (1.28%) (1.20%) (1.20%) (1.20%) Net Sub- scribers Added 199.178 281.988 285.904 239.721 239.343 240.137 234.453 222.100 214.424 161.594 104.487 Ending Subscribers 595.417 877.405 1,163.309 1,403.030 1,642.373 1,882.510 2,116.963 2,339.063 2,553.487 2715.081 2819.568 Average Subscribers 495.828 736.411 1,020.357 1,283.170 1,522.702 1,762.442 1,999.737 2,228.013 2,446.275 2,634.284 2,767.325 Total Penetration 3.91% 5.70% 7.49% 8.94% 10.36% 11.76% 13.09% 14.32% 15.48% 16.30% 16.76% % Penetration Growth NA 45.9% 31.3% 19.4% 15.9% 13.5% 11.3% 9.4% 8.1% 5.3% 2.8% Annual Penetration (1) 1.31% 1.83% 1.84% 1.53% 1.51% 1.50% 1.45% 1.36% 1.30% 0.97% 0.62% % Growth NA 40.2% 0.4% (17.0%) (1.1%) (0.7%) (3.3%) (6.2%) (4.4%) (25.4%) (36.0%) (1) Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (Cont d) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $84.17 $73.02 $65.35 $61.16 $59.35 $56.29 $54.36 $53.09 $52.37 $51.99 $50.77 % Growth NA (13.2%) (10.5%) (6.4%) (3.0%) (5.2%) (3.4%) (2.3%) (1.4%) (0.7%) (2.4%) Total Revenues $500,829 $645,306 $800,205 $941,754 $1,084,438 $1,190,517 $1,304,374 $1,419,469 $1,537,478 $1,643,588 $1,685,930 % Growth NA 28.8% 24.0% 17.7% 15.2% 9.8% 9.6% 8.8% 8.3% 6.9% 2.6% Direct Operating Expenses $147,455 $195,304 $251,052 $307,703 $370,389 $415,512 $475,916 $540,618 $614,895 $672,777 $705,970 % of Revenues 29.4% 30.3% 31.4% 32.7% 34.2% 34.9% 36.5% 38.1% 40.0% 40.9% 41.9% Cash Flow Before Marketing $353,374 $450,002 $549,153 $634,051 $714,049 $775,005 $828,458 $878,851 $922,583 $970,811 $979,960 Margin 70.6% 69.7% 68.6% 67.3% 65.8% 65.1% 63.5% 61.9% 60.0% 59.1% 58.1% Sales & Marketing $151,415 $158,515 $184,260 $203,670 $216,292 $222,605 $215,403 $197,505 $166,143 $147,373 $135,309 % of Revenues 30.2% 24.6% 23.0% 21.6% 19.9% 18.7% 16.5% 13.9% 10.8% 9.0% 8.0% Sales & Marketing / Gross Addition $478 $373 $378 $433 $429 $415 $386 $350 $293 $272 $269 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $298,870 $353,819 $435,312 $511,373 $586,681 $638,117 $691,319 $738,123 $781,038 $820,150 $841,279 Operating Cash Flow (OCF) $201,959 $291,487 $364,893 $430,381 $497,757 $552,400 $613,055 $681,346 $756,440 $823,438 $844,651 Margin 40.3% 45.2% 45.6% 45.7% 45.9% 46.4% 47.0% 48.0% 49.2% 50.1% 50.1% Depreciation & Amorti- zation $69,123 $98,578 $128,435 $141,466 $144,351 $141,082 $133,522 $121,308 $108,280 $95,692 $80,671 % of Revenues 13.8% 15.3% 16.1% 15.0% 13.3% 11.9% 10.2% 8.5% 7.0% 5.8% 4.8% EBIT $132,836 $192,909 $236,458 $288,915 $353,406 $411,318 $479,533 $560,038 $648,160 $727,746 $763,980 Margin 26.5% 29.9% 29.5% 30.7% 32.6% 34.5% 36.8% 39.5% 42.2% 44.3% 45.3% Taxes $46,893 $67,918 $83,160 $101,520 $124,092 $144,361 $168,237 $196,413 $227,256 $255,111 $267,793 Effective Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Unlevered Net Income $85,943 $124,991 $153,298 $187,395 $229,314 $266,957 $311,296 $363,625 $420,904 $472,635 $496,187 Net Margin 17.2% 19.4% 19.2% 19.9% 21.1% 22.4% 23.9% 25.6% 27.4% 28.8% 29.4% Free Cash Flow Unlevered Net Income $85,943 $124,991 $153,298 $187,395 $229,314 $266,957 $311,296 $363,625 $420,904 $472,635 $496,187 Depreciation & Amorti- zation $69,123 $98,578 $128,435 $141,466 $144,351 $141,082 $133,522 $121,308 $108,280 $95,692 $80,671 Capital Expendi- tures ($74,139) ($170,039) ($157,247) ($161,811) ($119,672) ($114,065) ($105,504) ($88,840) ($85,770) ($64,637) ($41,795) Change in Working Capital $0 ($14,448) ($15,490) ($14,155) ($14,268) ($10,608) ($11,386) ($11,510) ($11,801) ($10,611) ($4,234) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $80,927 $39,082 $108,996 $152,895 $239,725 $283,366 $327,929 $384,583 $431,613 $493,079 $530,829 Wasserstein Perella & Co. LIN BROADCASTING LIN Valuation (in thousands, except per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $1,550,319 $1,550,319 $1,550,319 $1,550,319 $1,550,319 $1,550,319 Terminal Value $2,926,318 $3,446,865 $3,778,122 $4,175,630 $4,661,474 $5,268,779 Enterprise Value $4,476,637 $4,997,184 $5,328,441 $5,725,949 $6,211,793 $6,819,098 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $4,476,637 $4,997,184 $5,328,441 $5,725,949 $6,211,793 $6,819,098 Proportionate Equity Value $4,401,877 $4,913,731 $5,239,456 $5,630,326 $6,108,056 $6,705,219 Value per Share $82.60 $92.20 $98.32 $105.65 $114.61 $125.82 Enterprise Value / POP $292.43 $326.44 $348.08 $374.05 $405.78 $445.46 Implied Exit Multiple of EBITDA 9.3x 11.0x 12.1x 13.3x 14.9x 16.8x 12.0% Present Value of Cash Flows $1,470,458 $1,470,458 $1,470,458 $1,470,458 $1,470,458 $1,470,458 Terminal Value $2,351,401 $2,713,154 $2,935,772 $3,195,493 $3,502,436 $3,870,767 Enterprise Value $3,821,859 $4,183,613 $4,406,230 $4,665,951 $4,972,894 $5,341,225 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $3,821,859 $4,183,613 $4,406,230 $4,665,951 $4,972,894 $5,341,225 Proportionate Equity Value $3,758,034 $4,113,746 $4,332,646 $4,588,030 $4,889,847 $5,252,027 Value per Share $70.52 $77.19 $81.30 $86.09 $91.76 $98.55 Enterprise Value / POP $249.66 $273.29 $287.84 $304.80 $324.85 $348.91 Implied Exit Multiple of EBITDA 8.2x 9.4x 10.2x 11.1x 12.2x 13.4x 13.0% Present Value of Cash Flows $1,396,052 $1,396,052 $1,396,052 $1,396,052 $1,396,052 $1,396,052 Terminal Value $1,920,879 $2,181,768 $2,338,301 $2,517,196 $2,723,614 $2,964,434 Enterprise Value $3,316,931 $3,577,820 $3,734,353 $3,913,248 $4,119,666 $4,360,486 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $3,316,931 $3,577,820 $3,734,353 $3,913,248 $4,119,666 $4,360,486 Proportionate Equity Value $3,261,538 $3,518,070 $3,671,989 $3,847,897 $4,050,867 $4,287,666 Value per Share $61.20 $66.01 $68.90 $72.20 $76.01 $80.46 Enterprise Value / POP $216.68 $233.72 $243.95 $255.63 $269.12 $284.85 Implied Exit Multiple of EBITDA 7.3x 8.2x 8.8x 9.5x 10.3x 11.2x 14.0% Present Value of Cash Flows $1,326,659 $1,326,659 $1,326,659 $1,326,659 $1,326,659 $1,326,659 Terminal Value $1,589,980 $1,783,632 $1,897,544 $2,025,696 $2,170,935 $2,336,922 Enterprise Value $2,916,639 $3,110,291 $3,224,204 $3,352,355 $3,497,594 $3,663,581 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $2,916,639 $3,110,291 $3,224,204 $3,352,355 $3,497,594 $3,663,581 Proportionate Equity Value $2,867,932 $3,058,349 $3,170,359 $3,296,371 $3,439,184 $3,602,399 Value per Share $53.82 $57.39 $59.49 $61.85 $64.53 $67.60 Enterprise Value / POP $190.53 $203.18 $210.62 $218.99 $228.48 $239.32 Implied Exit Multiple of EBITDA 6.5x 7.3x 7.8x 8.3x 8.9x 9.6x (1) Present values as of 6/30/95. Values per POP are based on 6/30/95E estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Assumes no debt allocated to segments, as it is consolidated at the parent level. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPs 14,368 14,512 14,657 14,803 14,951 15,101 15,252 15,404 15,558 15,714 15,871 % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning Subscribers 477.316 618.632 911.556 1,181.248 1,410.706 1,637.973 1,861.473 2,075.005 2,275.268 2,430.857 2,556.573 Gross Subscribers Added 322.911 434.847 445.488 439.406 465.064 485.958 508.769 526.534 508.549 499.774 502.920 Deacti- vations (181.595) (141.923) (175.796) (209.948) (237.797) (262.458) (295.237) (326.271) (352.960) (374.058) (391.819) Annual % Churn (33.14%) (18.55%) (16.80%) (16.20%) (15.60%) (15.00%) (15.00%) (15.00%) (15.00%) (15.00%) (15.00%) Monthly % Churn (2.76%) (1.55%) (1.40%) (1.35%) (1.30%) (1.25%) (1.25%) (1.25%) (1.25%) (1.25%) (1.25%) Net Subscri- Added 141.316 292.924 269.692 229.458 227.267 223.500 213.532 200.263 155.589 125.716 111.101 Ending Subscribers 618.632 911.556 1,181.248 1,410.706 1,637.973 1,861.473 2,075.005 2,275.268 2,430.857 2556.573 2667.674 Average Subscribers 547.974 765.094 ######## 1,295.977 1,524.340 1,749.723 1,968.239 2,175.137 2,353.063 2,493.715 2,612.124 Total Pene- tration 4.31% 6.28% 8.06% 9.53% 10.96% 12.33% 13.60% 14.77% 15.62% 16.27% 16.81% % Penetration Growth NA 45.9% 28.3% 18.2% 15.0% 12.5% 10.4% 8.6% 5.8% 4.1% 3.3% Annual Pene- tration(1) 0.98% 2.02% 1.84% 1.55% 1.52% 1.48% 1.40% 1.30% 1.00% 0.80% 0.70% % Growth NA 105.2% (8.8%) (15.8%) (1.9%) (2.6%) (5.4%) (7.1%) (23.1%) (20.0%) (12.5%) (1) Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (Cont d) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $82.75 $73.68 $70.16 $65.09 $61.67 $58.91 $57.62 $57.50 $57.50 $56.51 $55.85 % Growth NA (11.0%) (4.8%) (7.2%) (5.3%) (4.5%) (2.2%) (0.2%) 0.0% (1.7%) (1.2%) Total Revenues $544,106 $676,438 $880,997 $1,012,249 $1,127,995 $1,236,885 $1,360,972 $1,500,792 $1,623,679 $1,691,124 $1,750,524 % Growth NA 24.3% 30.2% 14.9% 11.4% 9.7% 10.0% 10.3% 8.2% 4.2% 3.5% Direct Operating Expenses $167,851 $179,683 $259,436 $311,060 $370,161 $425,120 $494,005 $572,429 $639,080 $687,226 $725,496 % of Revenues 30.8% 26.6% 29.4% 30.7% 32.8% 34.4% 36.3% 38.1% 39.4% 40.6% 41.4% Cash Flow Before Marketing $376,255 $496,755 $621,561 $701,189 $757,834 $811,765 $866,967 $928,363 $984,599 $1,003,898 $1,025,028 Margin 69.2% 73.4% 70.6% 69.3% 67.2% 65.6% 63.7% 61.9% 60.6% 59.4% 58.6% Sales & Marketing $117,488 $157,797 $177,538 $190,761 $188,874 $188,375 $179,676 $170,463 $162,368 $149,034 $140,138 % of Revenues 21.6% 23.3% 20.2% 18.8% 16.7% 15.2% 13.2% 11.4% 10.0% 8.8% 8.0% Sales & Marketing / Gross Addition $364 $363 $399 $434 $406 $388 $353 $324 $319 $298 $279 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $285,339 $337,480 $436,974 $501,821 $559,035 $613,495 $673,681 $742,892 $801,448 $836,260 $865,634 Operating Cash Flow (OCF) $258,767 $338,958 $444,023 $510,428 $568,960 $623,390 $687,291 $757,900 $822,231 $854,864 $884,890 Margin 47.6% 50.1% 50.4% 50.4% 50.4% 50.4% 50.5% 50.5% 50.6% 50.6% 50.6% Depreciation & Amorti- zation $65,507 $94,783 $129,060 $146,641 $146,052 $136,903 $121,801 $106,452 $89,434 $73,939 $62,405 % of Revenues 12.0% 14.0% 14.6% 14.5% 12.9% 11.1% 8.9% 7.1% 5.5% 4.4% 3.6% EBIT $193,260 $244,175 $314,963 $363,787 $422,908 $486,487 $565,490 $651,448 $732,797 $780,925 $822,485 Margin 35.5% 36.1% 35.8% 35.9% 37.5% 39.3% 41.6% 43.4% 45.1% 46.2% 47.0% Taxes $72,473 $91,540 $117,938 $136,983 $159,945 $184,855 $215,708 $249,125 $281,225 $301,535 $318,935 Effective Tax Rate 37.5% 37.5% 37.4% 37.7% 37.8% 38.0% 38.1% 38.2% 38.4% 38.6% 38.8% Unlevered Net Income $120,788 $152,635 $197,025 $226,804 $262,963 $301,632 $349,782 $402,323 $451,572 $479,390 $503,550 Net Margin 22.2% 22.6% 22.4% 22.4% 23.3% 24.4% 25.7% 26.8% 27.8% 28.3% 28.8% Free Cash Flow Unlevered Net Income $120,788 $152,635 $197,025 $226,804 $262,963 $301,632 $349,782 $402,323 $451,572 $479,390 $503,550 Depreciation & Amorti- zation $65,507 $94,783 $129,060 $146,641 $146,052 $136,903 $121,801 $106,452 $89,434 $73,939 $62,405 Capital Expendi- tures ($103,782) ($176,633) ($182,042) ($160,621) ($113,634) ($100,575) ($90,751)($80,105) ($62,236)($50,286) ($44,441) Change in Working Capital $0 ($13,233) ($20,456) ($13,125) ($11,575) ($10,889) ($12,409) ($13,982)($12,289)($6,745) ($5,940) As a % of Change in Revenues 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $82,513 $57,552 $123,587 $199,699 $283,806 $327,071 $368,423 $414,688 $466,481 $496,299 $515,574 Wasserstein Perella & Co. LIN BROADCASTING LIN Valuation (in thousands, except per POP values Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $1,715,230 $1,715,230 $1,715,230 $1,715,230 $1,715,230 $1,715,230 Terminal Value $2,842,222 $3,347,810 $3,669,547 $4,055,632 $4,527,514 $5,117,366 Enterprise Value $4,557,452 $5,063,040 $5,384,777 $5,770,862 $6,242,744 $6,832,596 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $4,557,452 $5,063,040 $5,384,777 $5,770,862 $6,242,744 $6,832,596 Proportionate Equity Value $1,821,614 $2,023,697 $2,152,295 $2,306,614 $2,495,225 $2,730,989 Value per Share $34.18 $37.97 $40.39 $43.28 $46.82 $51.25 Enterprise Value / POP $315.62 $350.63 $372.91 $399.65 $432.33 $473.18 Implied Exit Multiple of EBITDA 8.7x 10.2x 11.2x 12.4x 13.8x 15.6x 12.0% Present Value of Cash Flows $1,629,702 $1,629,702 $1,629,702 $1,629,702 $1,629,702 $1,629,702 Terminal Value $2,283,827 $2,635,185 $2,851,405 $3,103,662 $3,401,784 $3,759,530 Enterprise Value $3,913,529 $4,264,887 $4,481,107 $4,733,364 $5,031,486 $5,389,232 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $3,913,529 $4,264,887 $4,481,107 $4,733,364 $5,031,486 $5,389,232 Proportionate Equity Value $1,564,238 $1,704,675 $1,791,099 $1,891,926 $2,011,085 $2,154,076 Value per Share $29.35 $31.99 $33.61 $35.50 $37.74 $40.42 Enterprise Value / POP $271.02 $295.36 $310.33 $327.80 $348.44 $373.22 Implied Exit Multiple of EBITDA 7.6x 8.7x 9.5x 10.3x 11.3x 12.5x 13.0% Present Value of Cash Flows $1,549,907 $1,549,907 $1,549,907 $1,549,907 $1,549,907 $1,549,907 Terminal Value $1,865,678 $2,119,069 $2,271,104 $2,444,858 $2,645,343 $2,879,243 Enterprise Value $3,415,585 $3,668,977 $3,821,011 $3,994,765 $4,195,251 $4,429,150 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $3,415,585 $3,668,977 $3,821,011 $3,994,765 $4,195,251 $4,429,150 Proportionate Equity Value $1,365,209 $1,466,490 $1,527,258 $1,596,708 $1,676,842 $1,770,331 Value per Share $25.62 $27.52 $28.66 $29.96 $31.47 $33.22 Enterprise Value / POP $236.54 $254.09 $264.62 $276.65 $290.53 $306.73 Implied Exit Multiple of EBITDA 6.7x 7.6x 8.2x 8.8x 9.5x 10.4x 14.0% Present Value of Cash Flows $1,475,388 $1,475,388 $1,475,388 $1,475,388 $1,475,388 $1,475,388 Terminal Value $1,544,288 $1,732,374 $1,843,013 $1,967,482 $2,108,547 $2,269,764 Enterprise Value $3,019,676 $3,207,762 $3,318,401 $3,442,870 $3,583,935 $3,745,152 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $3,019,676 $3,207,762 $3,318,401 $3,442,870 $3,583,935 $3,745,152 Proportionate Equity Value $1,206,964 $1,282,142 $1,326,365 $1,376,115 $1,432,499 $1,496,937 Value per Share $22.65 $24.06 $24.89 $25.82 $26.88 $28.09 Enterprise Value / POP $209.12 $222.15 $229.81 $238.43 $248.20 $259.36 Implied Exit Multiple of EBITDA 6.1x 6.8x 7.2x 7.7x 8.3x 8.9x (1) Present values as of 6/30/95. Values per POP are based on 6/30/95E estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Assumes no debt allocated to segments, as it is consolidated at the parent level. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPs 4,108 4,149 4,191 4,232 4,275 4,318 4,361 4,404 4,448 4,493 4,538 % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning Subscribers 162.681 215.774 297.340 374.862 443.003 505.519 565.530 620.037 668.483 715.189 760.116 Gross Subscribers Added 94.493 125.000 139.634 141.625 145.323 150.782 151.960 151.076 153.387 243.911 156.982 Deacti- vations (41.400) (43.434) (62.112) (73.484) (82.807) (90.771) (97.453) (102.630) (106.681) (198.984) (116.144) Annual % Churn (21.88%) (16.93%) (18.48%) (17.97%) (17.46%) (16.95%) (16.44%) (15.93%) (15.42%) (26.98%) (14.88%) Monthly % Churn (1.82%) (1.41%) (1.54%) (1.50%) (1.46%) (1.41%) (1.37%) (1.33%) (1.28%) (2.25%) (1.24%) Net Subscri- Added 53.093 81.566 77.522 68.141 62.516 60.011 54.507 48.446 46.706 44.927 40.838 Ending Subscribers 215.774 297.340 374.862 443.003 505.519 565.530 620.037 668.483 715.189 760.116 800.954 Average Subscribers 189.228 256.557 336.101 408.933 474.261 535.525 592.784 644.260 691.836 737.653 780.535 Total Pene- tration 5.25% 7.17% 8.95% 10.47% 11.83% 13.10% 14.22% 15.18% 16.08% 16.92% 17.65% % Penetration Growth NA 36.4% 24.8% 17.0% 13.0% 10.8% 8.6% 6.7% 5.9% 5.2% 4.3% Annual Pene- tration(1) 1.29% 1.97% 1.85% 1.61% 1.46% 1.39% 1.25% 1.10% 1.05% 1.00% 0.90% % Growth NA 52.1% (5.9%) (13.0%) (9.2%) (5.0%) (10.1%) (12.0%) (4.5%) (4.8%) (10.0%) (1) Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (Cont d) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $76.50 $71.65 $66.90 $63.74 $61.06 $58.35 $56.34 $55.43 $54.85 $54.76 $54.27 % Growth NA (6.3%) (6.6%) (4.7%) (4.2%) (4.4%) (3.5%) (1.6%) (1.0%) (0.2%) (0.9%) Total Revenues $173,718 $220,577 $269,802 $312,781 $347,477 $375,003 $400,769 $428,533 $455,368 $484,730 $508,333 % Growth NA 27.0% 22.3% 15.9% 11.1% 7.9% 6.9% 6.9% 6.3% 6.4% 4.9% Direct Operating Expenses $50,520 $55,811 $83,317 $101,895 $118,571 $132,000 $147,802 $165,861 $182,208 $199,396 $214,871 % of Revenues 29.1% 25.3% 30.9% 32.6% 34.1% 35.2% 36.9% 38.7% 40.0% 41.1% 42.3% Cash Flow Before Marketing $123,198 $164,766 $186,485 $210,886 $228,906 $243,003 $252,967 $262,672 $273,160 $285,334 $293,462 Margin 70.9% 74.7% 69.1% 67.4% 65.9% 64.8% 63.1% 61.3% 60.0% 58.9% 57.7% Sales & Marketing $51,535 $68,165 $72,593 $75,393 $77,545 $75,377 $69,013 $61,261 $53,217 $44,908 $37,771 % of Revenues 29.7% 30.9% 26.9% 24.1% 22.3% 20.1% 17.2% 14.3% 11.7% 9.3% 7.4% Sales & Marketing/ Gross Addition $545 $545 $520 $532 $534 $500 $454 $405 $347 $184 $241 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $102,055 $123,976 $155,910 $177,288 $196,116 $207,377 $216,815 $227,122 $235,425 $244,304 $252,642 Operating Cash Flow (OCF) $71,663 $96,601 $113,892 $135,493 $151,361 $167,626 $183,954 $201,411 $219,943 $240,426 $255,691 Margin 41.3% 43.8% 42.2% 43.3% 43.6% 44.7% 45.9% 47.0% 48.3% 49.6% 50.3% Depreciation & Amorti- zation $25,976 $39,081 $46,494 $47,763 $46,232 $43,155 $37,424 $31,123 $25,484 $22,215 $19,878 % of Revenues 15.0% 17.7% 17.2% 15.3% 13.3% 11.5% 9.3% 7.3% 5.6% 4.6% 3.9% EBIT $45,687 $57,520 $67,398 $87,730 $105,129 $124,471 $146,530 $170,288 $194,459 $218,211 $235,813 Margin 26.3% 26.1% 25.0% 28.0% 30.3% 33.2% 36.6% 39.7% 42.7% 45.0% 46.4% Taxes $17,327 $21,814 $25,561 $33,272 $39,870 $47,206 $55,572 $64,582 $73,749 $82,757 $89,432 Effective Tax Rate 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% Unlevered Net Income $28,360 $35,706 $41,837 $54,458 $65,259 $77,265 $90,958 $105,706 $120,710 $135,454 $146,381 Net Margin 16.3% 16.2% 15.5% 17.4% 18.8% 20.6% 22.7% 24.7% 26.5% 27.9% 28.8% Free Cash Flow Unlevered Net Income $28,360 $35,706 $41,837 $54,458 $65,259 $77,265 $90,958 $105,706 $120,710 $135,454 $146,381 Depreciation & Amorti- zation $25,976 $39,081 $46,494 $47,763 $46,232 $43,155 $37,424 $31,123 $25,484 $22,215 $19,878 Capital Expenditures ($54,152) ($60,000) ($54,266) ($44,291) ($34,384) ($33,006) ($27,253) ($19,378) ($18,682) ($17,971) ($16,335) Change in Working Capital $0 ($4,686) ($4,923) ($4,298) ($3,470) ($2,753) ($2,577) ($2,776) ($2,684) ($2,936) ($2,360) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $184 $10,101 $29,143 $53,632 $73,637 $84,662 $98,553 $114,675 $124,829 $136,762 $147,564 Wasserstein Perella & Co. LIN BROADCASTING LIN Valuation (in thousands, except per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $456,924 $456,924 $456,924 $456,924 $456,924 $456,924 Terminal Value $813,479 $958,184 $1,050,270 $1,160,772 $1,295,830 $1,464,653 Enterprise Value $1,270,402 $1,415,108 $1,507,193 $1,617,695 $1,752,754 $1,921,577 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $1,270,402 $1,415,108 $1,507,193 $1,617,695 $1,752,754 $1,921,577 Proportionate Equity Value $767,831 $855,291 $910,948 $977,735 $1,059,364 $1,161,401 Value per Share $14.41 $16.05 $17.09 $18.35 $19.88 $21.79 Enterprise Value / POP $307.71 $342.76 $365.07 $391.83 $424.55 $465.44 Implied Exit Multiple of EBIDTA 8.6x 10.1x 11.1x 12.2x 13.7x 15.4x 12.0% Present Value of Cash Flows $433,694 $433,694 $433,694 $433,694 $433,694 $433,694 Terminal Value $653,659 $754,222 $816,107 $888,306 $973,632 $1,076,024 Enterprise Value $1,087,353 $1,187,916 $1,249,801 $1,322,000 $1,407,326 $1,509,718 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $1,087,353 $1,187,916 $1,249,801 $1,322,000 $1,407,326 $1,509,718 Proportionate Equity Value $657,196 $717,976 $755,380 $799,017 $850,588 $912,473 Value per Share $12.33 $13.47 $14.17 $14.99 $15.96 $17.12 Enterprise Value / POP $263.37 $287.73 $302.72 $320.21 $340.88 $365.68 Implied Exit Multiple of EBITDA 7.5x 8.7x 9.4x 10.2x 11.2x 12.4x 13.0% Present Value of Cash Flows $412,034 $412,034 $412,034 $412,034 $412,034 $412,034 Terminal Value $533,980 $606,504 $650,018 $699,748 $757,130 $824,075 Enterprise Value $946,014 $1,018,538 $1,062,052 $1,111,783 $1,169,164 $1,236,109 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $946,014 $1,018,538 $1,062,052 $1,111,783 $1,169,164 $1,236,109 Proportionate Equity Value $571,771 $615,604 $641,904 $671,962 $706,643 $747,104 Value per Share $10.73 $11.55 $12.05 $12.61 $13.26 $14.02 Enterprise Value / POP $229.14 $246.71 $257.25 $269.29 $283.19 $299.41 Implied Exit Multiple of EBITDA 6.7x 7.6x 8.1x 8.7x 9.5x 10.3x 14.0% Present Value of Cash Flows $391,819 $391,819 $391,819 $391,819 $391,819 $391,819 Terminal Value $441,994 $495,827 $527,493 $563,118 $603,492 $649,634 Enterprise Value $833,813 $887,646 $919,312 $954,937 $995,311 $1,041,453 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $833,813 $887,646 $919,312 $954,937 $995,311 $1,041,453 Proportionate Equity Value $503,957 $536,493 $555,632 $577,164 $601,566 $629,454 Value per Share $9.46 $10.07 $10.43 $10.83 $11.29 $11.81 Enterprise Value / POP $201.96 $215.00 $222.67 $231.30 $241.08 $252.26 Implied Exit Multiple of EBITDA 6.0x 6.7x 7.2x 7.6x 8.2x 8.8x (1) Present values as of 6/30/95. Values per POP are based on 6/30/95E estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Assumes no debt allocated to segments, as it is consolidated at the parent level. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPs 3,613 3,649 3,686 3,722 3,760 3,797 3,835 3,874 3,912 3,951 3,991 % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning Sub- cribers 163.123 218.844 303.044 378.235 441.522 501.681 554.846 604.708 649.258 688.384 719.998 Gross Subscribers Added 97.121 126.223 128.331 126.245 130.899 132.404 136.828 138.597 139.449 137.242 141.036 Deacti- vations (41.400) (42.023) (53.140) (62.958) (70.740) (79.239) (86.966) (94.047) (100.323) (105.628) (110.304) Annual % Churn (21.68%) (16.10%) (15.60%) (15.36%) (15.00%) (15.00%) (15.00%) (15.00%) (15.00%) (15.00%) (15.00%) Monthly % Churn (1.81%) (1.34%) (1.30%) (1.28%) (1.25%) (1.25%) (1.25%) (1.25%) (1.25%) (1.25%) (1.25%) Net Subscri- bers Added 55.721 84.200 75.191 63.287 60.159 53.165 49.862 44.550 39.126 31.614 30.732 Ending Subscribers 218.844 303.044 378.235 441.522 501.681 554.846 604.708 649.258 688.384 719.998 750.730 Average Subscribers 190.984 260.944 340.640 409.879 471.602 528.264 579.777 626.983 668.821 704.191 735.364 Total Pene- tration 6.06% 8.30% 10.26% 11.86% 13.34% 14.61% 15.77% 16.76% 17.60% 18.22% 18.81% % Penetration Growth NA 37.1% 23.6% 15.6% 12.5% 9.5% 7.9% 6.3% 5.0% 3.6% 3.2% Annual Pene- tration(1) 1.54% 2.31% 2.04% 1.70% 1.60% 1.40% 1.30% 1.15% 1.00% 0.80% 0.77% % Growth NA 49.6% (11.6%) (16.7%) (5.9%) (12.5%) (7.1%) (11.5%) (13.0%) (20.0%) (3.8%) (1) Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (Cont d) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $70.18 $64.29 $52.92 $49.26 $46.78 $45.58 $44.99 $44.58 $44.56 $44.59 $44.59 % Growth NA (8.4%) (17.7%) (6.9%) (5.0%) (2.6%) (1.3%) (0.9%) (0.1%) 0.1% (0.0%) Total Revenues $160,845 $201,304 $216,322 $242,266 $264,710 $288,951 $313,039 $335,419 $357,622 $376,836 $393,513 % Growth NA 25.2% 7.5% 12.0% 9.3% 9.2% 8.3% 7.1% 6.6% 5.4% 4.4% Direct Operating Expenses $47,676 $50,974 $64,472 $76,008 $86,848 $98,906 $111,434 $123,037 $134,624 $145,788 $157,499 % of Revenues 29.6% 25.3% 29.8% 31.4% 32.8% 34.2% 35.6% 36.7% 37.6% 38.7% 40.0% Cash Flow Before Marketing $113,169 $150,330 $151,850 $166,258 $177,862 $190,045 $201,605 $212,382 $222,998 $231,048 $236,014 Margin 70.4% 74.7% 70.2% 68.6% 67.2% 65.8% 64.4% 63.3% 62.4% 61.3% 60.0% Sales & Marketing $40,183 $52,449 $47,151 $49,002 $48,948 $49,326 $48,216 $45,343 $41,683 $35,847 $29,026 % of Revenues 25.0% 26.1% 21.8% 20.2% 18.5% 17.1% 15.4% 13.5% 11.7% 9.5% 7.4% Sales & Marketing / Gross Addition $414 $416 $367 $388 $374 $373 $352 $327 $299 $261 $206 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $87,859 $103,423 $111,623 $125,010 $135,796 $148,232 $159,650 $168,380 $176,307 $181,635 $186,525 Operating Cash Flow (OCF) $72,986 $97,881 $104,699 $117,256 $128,914 $140,719 $153,389 $167,039 $181,315 $195,201 $206,988 Margin 45.4% 48.6% 48.4% 48.4% 48.7% 48.7% 49.0% 49.8% 50.7% 51.8% 52.6% Depreciation & Amorti- zation $32,591 $44,021 $45,802 $45,233 $43,827 $37,415 $30,559 $26,066 $21,492 $17,889 $15,382 % of Revenues 20.3% 21.9% 21.2% 18.7% 16.6% 12.9% 9.8% 7.8% 6.0% 4.7% 3.9% EBIT $40,395 $53,860 $58,897 $72,023 $85,087 $103,304 $122,830 $140,973 $159,823 $177,312 $191,606 Margin 25.1% 26.8% 27.2% 29.7% 32.1% 35.8% 39.2% 42.0% 44.7% 47.1% 48.7% Taxes $15,320 $20,426 $22,337 $27,315 $32,269 $39,178 $46,583 $53,464 $60,613 $67,246 $72,667 Effective Tax Rate 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% Unlevered Net Income $25,075 $33,434 $36,560 $44,708 $52,818 $64,126 $76,247 $87,509 $99,210 $110,066 $118,939 Net Margin 15.6% 16.6% 16.9% 18.5% 20.0% 22.2% 24.4% 26.1% 27.7% 29.2% 30.2% Free Cash Flow Unlevered Net Income $25,075 $33,434 $36,560 $44,708 $52,818 $64,126 $76,247 $87,509 $99,210 $110,066 $118,939 Depreciation & Amorti- zation $32,591 $44,021 $45,802 $45,233 $43,827 $37,415 $30,559 $26,066 $21,492 $17,889 $15,382 Capital Expendi- tures ($76,855) ($40,000) ($50,754) ($41,136) ($30,080) ($23,925) ($21,191) ($17,820) ($15,650) ($12,646) ($12,293) Change in Working Capital $0 ($4,046) ($1,502) ($2,594) ($2,244) ($2,424) ($2,409) ($2,238) ($2,220) ($1,921) ($1,668) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) ($19,189) $33,409 $30,107 $46,211 $64,320 $75,192 $83,206 $93,517 $102,832 $113,388 $120,361 Wasserstein Perella & Co. LIN BROADCASTING LIN Valuation (in thousands, except per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $401,546 $401,546 $401,546 $401,546 $401,546 $401,546 Terminal Value $663,517 $781,546 $856,656 $946,787 $1,056,948 $1,194,649 Enterprise Value $1,065,063 $1,183,092 $1,258,202 $1,348,334 $1,458,494 $1,596,195 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $1,065,063 $1,183,092 $1,258,202 $1,348,334 $1,458,494 $1,596,195 Proportionate Equity Value $599,098 $665,489 $707,739 $758,438 $820,403 $897,860 Value per Share $11.24 $12.49 $13.28 $14.23 $15.39 $16.85 Enterprise Value / POP $293.32 $325.83 $346.51 $371.33 $401.67 $439.59 Implied Exit Multiple of EBITDA 8.6x 10.2x 11.2x 12.3x 13.8x 15.6x 12.0% Present Value of Cash Flows $382,026 $382,026 $382,026 $382,026 $382,026 $382,026 Terminal Value $533,159 $615,184 $665,660 $724,550 $794,146 $877,662 Enterprise Value $915,185 $997,210 $1,047,687 $1,106,576 $1,176,172 $1,259,688 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $915,185 $997,210 $1,047,687 $1,106,576 $1,176,172 $1,259,688 Proportionate Equity Value $514,792 $560,931 $589,324 $622,449 $661,597 $708,575 Value per Share $9.66 $10.53 $11.06 $11.68 $12.41 $13.30 Enterprise Value / POP $252.04 $274.63 $288.53 $304.75 $323.92 $346.92 Implied Exit Multiple of EBITDA 7.6x 8.7x 9.4x 10.3x 11.3x 12.4x 13.0% Present Value of Cash Flows $363,812 $363,812 $363,812 $363,812 $363,812 $363,812 Terminal Value $435,542 $494,697 $530,189 $570,752 $617,555 $672,159 Enterprise Value $799,355 $858,509 $894,001 $934,564 $981,368 $1,035,971 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $799,355 $858,509 $894,001 $934,564 $981,368 $1,035,971 Proportionate Equity Value $449,637 $482,911 $502,876 $525,692 $552,019 $582,734 Value per Share $8.44 $9.06 $9.44 $9.86 $10.36 $10.93 Enterprise Value / POP $220.14 $236.43 $246.21 $257.38 $270.27 $285.31 Implied Exit Multiple of EBITDA 6.7x 7.6x 8.2x 8.8x 9.5x 10.4x 14.0% Present Value of Cash Flows $346,800 $346,800 $346,800 $346,800 $346,800 $346,800 Terminal Value $360,514 $404,423 $430,251 $459,309 $492,240 $529,876 Enterprise Value $707,314 $751,223 $777,052 $806,109 $839,041 $876,677 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $707,314 $751,223 $777,052 $806,109 $839,041 $876,677 Proportionate Equity Value $397,864 $422,563 $437,092 $453,436 $471,960 $493,131 Value per Share $7.47 $7.93 $8.20 $8.51 $8.86 $9.25 Enterprise Value / POP $194.80 $206.89 $214.00 $222.00 $231.07 $241.44 Implied Exit Multiple of EBITDA 6.0x 6.8x 7.2x 7.7x 8.3x 8.9x (1) Present values as of 6/30/95. Values per POP are based on 6/30/95E estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Assumes no debt allocated to segments, as it is consolidated at the parent level. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPs 232 234 237 239 241 244 246 249 251 254 256 % Growth Rate NA 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Beginning Subscribers 2.380 4.399 6.740 9.814 13.396 17.255 20.422 23.375 26.109 28.367 30.142 Gross Subscribers Added 2.804 3.544 4.790 5.892 6.788 6.623 6.710 6.831 6.572 6.268 5.787 Deacti- vations (0.785) (1.203) (1.716) (2.310) (2.929) (3.456) (3.757) (4.097) (4.314) (4.493) (4.507) Annual % Churn (23.16%) (21.60%) (20.73%) (19.91%) (19.11%) (18.35%) (17.16%) (16.56%) (15.84%) (15.36%) (14.64%) Monthly % Churn (1.93%) (1.80%) (1.73%) (1.66%) (1.59%) (1.53%) (1.43%) (1.38%) (1.32%) (1.28%) (1.22%) Net Subscri- Added 2.019 2.341 3.074 3.582 3.859 3.167 2.953 2.734 2.258 1.775 1.280 Ending Subscribers 4.399 6.740 9.814 13.396 17.255 20.422 23.375 26.109 28.367 30.142 31.422 Average Subscribers 3.390 5.570 8.277 11.605 15.326 18.839 21.899 24.742 27.238 29.255 30.782 Total Pene- tration 1.90% 2.88% 4.15% 5.60% 7.15% 8.38% 9.49% 10.50% 11.29% 11.88% 12.26% % Penetration Growth NA 51.7% 44.2% 35.1% 27.5% 17.2% 13.3% 10.6% 7.6% 5.2% 3.2% Annual Pene- tration(1) 0.87% 1.00% 1.30% 1.50% 1.60% 1.30% 1.20% 1.10% 0.90% 0.70% 0.50% % Growth NA 14.8% 30.0% 15.4% 6.7% (18.7%) (7.7%) (8.3%) (18.2%) (22.2%) (28.6%) (1) Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (Cont d) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $117.77 $92.77 $78.00 $70.49 $66.80 $63.15 $61.00 $60.00 $59.88 $59.76 $59.64 % Growth NA (21.2%) (15.9%) (9.6%) (5.2%) (5.5%) (3.4%) (1.6%) (0.2%) (0.2%) (0.2%) Total Revenues $4,790 $6,200 $7,747 $9,816 $12,285 $14,276 $16,030 $17,814 $19,572 $20,979 $22,030 % Growth NA 29.4% 25.0% 26.7% 25.2% 16.2% 12.3% 11.1% 9.9% 7.2% 5.0% Direct Operating Expenses $1,666 $1,800 $2,834 $3,689 $4,727 $5,746 $6,688 $7,546 $8,214 $8,822 $9,283 % of Revenues 34.8% 29.0% 36.6% 37.6% 38.5% 40.2% 41.7% 42.4% 42.0% 42.1% 42.1% Cash Flow Before Marketing $3,124 $4,400 $4,913 $6,127 $7,558 $8,530 $9,342 $10,268 $11,358 $12,157 $12,747 Margin 65.2% 71.0% 63.4% 62.4% 61.5% 59.8% 58.3% 57.6% 58.0% 57.9% 57.9% Sales & Marketing $753 $1,600 $2,130 $2,368 $2,675 $2,510 $2,415 $2,418 $2,322 $2,060 $1,553 % of Revenues 15.7% 25.8% 27.5% 24.1% 21.8% 17.6% 15.1% 13.6% 11.9% 9.8% 7.0% Sales & Marketing / Gross Addition $269 $451 $445 $402 $394 $379 $360 $354 $353 $329 $268 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $2,419 $3,400 $4,964 $6,057 $7,402 $8,256 $9,103 $9,964 $10,536 $10,882 $10,836 Operating Cash Flow (OCF) $2,371 $2,800 $2,783 $3,759 $4,883 $6,020 $6,927 $7,850 $9,036 $10,097 $11,194 Margin 49.5% 45.2% 35.9% 38.3% 39.7% 42.2% 43.2% 44.1% 46.2% 48.1% 50.8% Depreciation & Amorti- zation $0 $468 $1,364 $2,150 $2,238 $1,809 $1,445 $1,143 $792 $528 $419 % of Revenues 0.0% 7.5% 17.6% 21.9% 18.2% 12.7% 9.0% 6.4% 4.0% 2.5% 1.9% EBIT $2,371 $2,332 $1,419 $1,609 $2,645 $4,211 $5,482 $6,707 $8,244 $9,569 $10,775 Margin 49.5% 37.6% 18.3% 16.4% 21.5% 29.5% 34.2% 37.7% 42.1% 45.6% 48.9% Taxes $899 $884 $538 $610 $1,003 $1,597 $2,079 $2,544 $3,127 $3,629 $4,086 Effective Tax Rate 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% Unlevered Net Income $1,472 $1,448 $881 $999 $1,642 $2,614 $3,403 $4,163 $5,117 $5,940 $6,689 Net Margin 30.7% 23.3% 11.4% 10.2% 13.4% 18.3% 21.2% 23.4% 26.1% 28.3% 30.4% Free Cash Flow Unlevered Net Income $1,472 $1,448 $881 $999 $1,642 $2,614 $3,403 $4,163 $5,117 $5,940 $6,689 Depreciation & Amorti- zation $0 $468 $1,364 $2,150 $2,238 $1,809 $1,445 $1,143 $792 $528 $419 Capital Expendi- tures $0 ($2,341) ($3,074) ($3,582) ($1,158) ($633) ($591) ($547) ($452) ($355) ($256) Change in Working Capital $0 ($141) ($155) ($207) ($247) ($199) ($175) ($178) ($176) ($141) ($105) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $1,472 ($566) ($984) ($640) $2,475 $3,591 $4,082 $4,581 $5,282 $5,972 $6,746 Wasserstein Perella & Co. LIN BROADCASTING LIN Valuation (in thousands, except per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $14,361 $14,361 $14,361 $14,361 $14,361 $14,361 Terminal Value $37,192 $43,807 $48,017 $53,069 $59,244 $66,963 Enterprise Value $51,553 $58,168 $62,378 $67,430 $73,605 $81,324 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $51,553 $58,168 $62,378 $67,430 $73,605 $81,324 Proportionate Equity Value $17,683 $19,952 $21,396 $23,129 $25,247 $27,894 Value per Share $0.33 $0.37 $0.40 $0.43 $0.47 $0.52 Enterprise Value / POP $221.10 $249.48 $267.53 $289.20 $315.69 $348.79 Implied Exit Multiple of EBITDA 9.0x 10.5x 11.6x 12.8x 14.3x 16.1x 12.0% Present Value of Cash Flows $13,458 $13,458 $13,458 $13,458 $13,458 $13,458 Terminal Value $29,885 $34,482 $37,312 $40,613 $44,514 $49,195 Enterprise Value $43,343 $47,940 $50,770 $54,071 $57,972 $62,653 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $43,343 $47,940 $50,770 $54,071 $57,972 $62,653 Proportionate Equity Value $14,867 $16,444 $17,414 $18,546 $19,884 $21,490 Value per Share $0.28 $0.31 $0.33 $0.35 $0.37 $0.40 Enterprise Value / POP $185.89 $205.61 $217.75 $231.90 $248.63 $268.71 Implied Exit Multiple of EBITDA 7.8x 9.0x 9.8x 10.6x 11.7x 12.9x 13.0% Present Value of Cash Flows $12,620 $12,620 $12,620 $12,620 $12,620 $12,620 Terminal Value $24,413 $27,729 $29,718 $31,992 $34,615 $37,676 Enterprise Value $37,033 $40,349 $42,338 $44,612 $47,236 $50,296 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $37,033 $40,349 $42,338 $44,612 $47,236 $50,296 Proportionate Equity Value $12,702 $13,840 $14,522 $15,302 $16,202 $17,252 Value per Share $0.24 $0.26 $0.27 $0.29 $0.30 $0.32 Enterprise Value / POP $158.83 $173.05 $181.59 $191.34 $202.59 $215.72 Implied Exit Multiple of EBITDA 7.0x 7.9x 8.5x 9.1x 9.9x 10.7x 14.0% Present Value of Cash Flows $11,842 $11,842 $11,842 $11,842 $11,842 $11,842 Terminal Value $20,208 $22,669 $24,117 $25,745 $27,591 $29,701 Enterprise Value $32,049 $34,511 $35,958 $37,587 $39,433 $41,543 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $32,049 $34,511 $35,958 $37,587 $39,433 $41,543 Proportionate Equity Value $10,993 $11,837 $12,334 $12,892 $13,526 $14,249 Value per Share $0.21 $0.22 $0.23 $0.24 $0.25 $0.27 Enterprise Value / POP $137.46 $148.01 $154.22 $161.21 $169.12 $178.17 Implied Exit Multiple of EBITDA 6.3x 7.0x 7.5x 8.0x 8.6x 9.2x (1) Present values as of 6/30/95. Values per POP are based on 6/30/95E estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Assumes no debt allocated to segments, as it is consolidated at the parent level. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPs 177 179 181 183 184 186 188 190 192 194 196 % Growth Rate NA 1.10% 1.10% 1.10% 0.50% 1.10% 1.10% 1.10% 1.10% 1.00% 1.00% Beginning Subscribers - 2.252 4.042 6.031 8.405 10.434 12.110 13.615 14.946 16.097 17.066 Gross Subscribers Added 2.252 2.785 3.034 3.811 3.829 3.744 3.771 3.745 3.671 3.553 3.395 Deacti- vations - (0.995) (1.045) (1.437) (1.800) (2.068) (2.266) (2.414) (2.520) (2.584) (2.611) Annual % Churn 0.00% (31.62%) (20.75%) (19.91%) (19.11%) (18.35%) (17.62%) (16.90%) (16.24%) (15.58%) (14.96%) Monthly % Churn 0.00% (2.63%) (1.73%) (1.66%) (1.59%) (1.53%) (1.47%) (1.41%) (1.35%) (1.30%) (1.25%) Net Subscri- Added 2.252 1.790 1.989 2.374 2.029 1.676 1.505 1.331 1.151 0.969 0.784 Ending Sub- scribers 2.252 4.042 6.031 8.405 10.434 12.110 13.615 14.946 16.097 17.066 17.850 Average Sub- scribers 1.126 3.147 5.037 7.218 9.420 11.272 12.863 14.281 15.522 16.582 17.458 Total Pene- tration 1.27% 2.26% 3.33% 4.60% 5.68% 6.52% 7.25% 7.87% 8.38% 8.80% 9.11% % Penetration Growth NA 77.5% 47.6% 37.8% 23.5% 14.8% 11.2% 8.6% 6.5% 5.0% 3.6% Annual Pene- tration(1) 1.27% 1.00% 1.10% 1.30% 1.10% 0.90% 0.80% 0.70% 0.60% 0.50% 0.40% % Growth NA (21.4%) 9.9% 18.1% (15.0%) (18.3%) (11.2%) (12.5%) (14.5%) (16.6%) (19.9%) (1) Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (Cont d) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $0.00 $55.61 $50.03 $49.54 $49.05 $48.56 $48.07 $47.59 $47.11 $46.64 $46.18 % Growth NA NA (10.0%) (1.0%) (1.0%) (1.0%) (1.0%) (1.0%) (1.0%) (1.0%) (1.0%) Total Revenues $0 $2,100 $3,024 $4,291 $5,544 $6,568 $7,420 $8,155 $8,775 $9,281 $9,674 % Growth NA NA 44.0% 41.9% 29.2% 18.5% 13.0% 9.9% 7.6% 5.8% 4.2% Direct Operating Expenses $0 $1,800 $1,694 $2,283 $2,800 $3,150 $3,379 $3,526 $3,602 $3,794 $3,995 % of Revenues NA 85.7% 56.0% 53.2% 50.5% 48.0% 45.5% 43.2% 41.0% 40.9% 41.3% Cash Flow Before Marketing $0 $300 $1,330 $2,008 $2,744 $3,418 $4,041 $4,629 $5,173 $5,487 $5,679 Margin NA 14.3% 44.0% 46.8% 49.5% 52.0% 54.5% 56.8% 59.0% 59.1% 58.7% Sales & Marketing $0 $700 $729 $1,057 $1,164 $1,127 $1,124 $1,105 $1,038 $928 $784 % of Revenues NA 33.3% 24.1% 24.6% 21.0% 17.2% 15.1% 13.5% 11.8% 10.0% 8.1% Sales & Marketing/ Gross Addition $0 $251 $240 $277 $304 $301 $298 $295 $283 $261 $231 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $0 $2,500 $2,423 $3,340 $3,964 $4,277 $4,503 $4,631 $4,640 $4,722 $4,779 Operating Cash Flow (OCF) $0 ($400) $601 $951 $1,580 $2,291 $2,917 $3,524 $4,135 $4,559 $4,895 Margin NA (19.0%) 19.9% 22.2% 28.5% 34.9% 39.3% 43.2% 47.1% 49.1% 50.6% Depreciation & Amorti- zation $0 $2,758 $3,371 $3,855 $3,829 $3,488 $3,251 $3,049 $2,811 $2,660 $2,622 % of Revenues NA 131.3% 111.5% 89.8% 69.1% 53.1% 43.8% 37.4% 32.0% 28.7% 27.1% EBIT $0 ($3,158) ($2,770) ($2,904) ($2,249) ($1,197) ($334) $475 $1,324 $1,899 $2,273 Margin NA (150.4%) (91.6%) (67.7%) (40.6%) (18.2%) (4.5%) 5.8% 15.1% 20.5% 23.5% Taxes $0 ($1,200) ($1,053) ($1,104) ($855) ($455) ($127) $181 $503 $722 $864 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $0 ($1,958) ($1,717) ($1,800) ($1,394) ($742) ($207) $295 $821 $1,177 $1,409 Net Margin NA (93.2%) (56.8%) (42.0%) (25.2%) (11.3%) (2.8%) 3.6% 9.4% 12.7% 14.6% Free Cash Flow Unlevered Net Income $0 ($1,958) ($1,717) ($1,800) ($1,394) ($742) ($207) $295 $821 $1,177 $1,409 Depreciation & Amorti- zation $0 $2,758 $3,371 $3,855 $3,829 $3,488 $3,251 $3,049 $2,811 $2,660 $2,622 Capital Expenditures $0 ($1,790) ($1,989) ($2,374) ($406) ($335) ($301) ($266) ($230) ($194) ($157) Change in Working Capital $0 ($210) ($92) ($127) ($125) ($102) ($85) ($74) ($62) ($51) ($39) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $0 ($1,200) ($428) ($446) $1,903 $2,308 $2,658 $3,004 $3,340 $3,593 $3,835 Wasserstein Perella & Co. LIN BROADCASTING LIN Valuation (in thousands, except per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $8,936 $8,936 $8,936 $8,936 $8,936 $8,936 Terminal Value $21,141 $24,902 $27,295 $30,167 $33,677 $38,064 Enterprise Value $30,077 $33,838 $36,231 $39,103 $42,613 $47,000 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $30,077 $33,838 $36,231 $39,103 $42,613 $47,000 Proportionate Equity Value $30,077 $33,838 $36,231 $39,103 $42,613 $47,000 Value per Share $0.56 $0.63 $0.68 $0.73 $0.80 $0.88 Enterprise Value / POP $169.00 $190.13 $203.58 $219.71 $239.43 $264.09 Implied Exit Multiple of EBITDA 11.6x 13.7x 15.0x 16.6x 18.5x 21.0x 12.0% Present Value of Cash Flows $8,371 $8,371 $8,371 $8,371 $8,371 $8,371 Terminal Value $16,988 $19,601 $21,209 $23,086 $25,303 $27,964 Enterprise Value $25,359 $27,972 $29,580 $31,457 $33,674 $36,335 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $25,359 $27,972 $29,580 $31,457 $33,674 $36,335 Proportionate Equity Value $25,359 $27,972 $29,580 $31,457 $33,674 $36,335 Value per Share $0.48 $0.52 $0.56 $0.59 $0.63 $0.68 Enterprise Value / POP $142.48 $157.17 $166.21 $176.75 $189.21 $204.16 Implied Exit Multiple of EBITDA 10.2x 11.8x 12.7x 13.8x 15.2x 16.8x 13.0% Present Value of Cash Flows $7,846 $7,846 $7,846 $7,846 $7,846 $7,846 Terminal Value $13,877 $15,762 $16,893 $18,185 $19,677 $21,416 Enterprise Value $21,723 $23,608 $24,739 $26,031 $27,522 $29,262 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $21,723 $23,608 $24,739 $26,031 $27,522 $29,262 Proportionate Equity Value $21,723 $23,608 $24,739 $26,031 $27,522 $29,262 Value per Share $0.41 $0.44 $0.46 $0.49 $0.52 $0.55 Enterprise Value / POP $122.06 $132.65 $139.00 $146.26 $154.64 $164.42 Implied Exit Multiple of EBITDA 9.1x 10.3x 11.0x 11.9x 12.8x 14.0x 14.0% Present Value of Cash Flows $7,357 $7,357 $7,357 $7,357 $7,357 $7,357 Terminal Value $11,487 $12,886 $13,709 $14,635 $15,684 $16,883 Enterprise Value $18,844 $20,243 $21,066 $21,992 $23,041 $24,240 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $18,844 $20,243 $21,066 $21,992 $23,041 $24,240 Proportionate Equity Value $18,844 $20,243 $21,066 $21,992 $23,041 $24,240 Value per Share $0.35 $0.38 $0.40 $0.41 $0.43 $0.45 Enterprise Value / POP $105.88 $113.74 $118.37 $123.57 $129.46 $136.20 Implied Exit Multiple of EBITDA 8.1x 9.1x 9.7x 10.4x 11.1x 12.0x (1) Present values as of 6/30/95. Values per POP are based on 6/30/95E estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Assumes no debt allocated to segments, as it is consolidated at the parent level. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total No. of POPs 230 233 235 237 240 242 244 247 249 252 254 % Growth Rate NA 1.20% 0.90% 0.90% 1.30% 0.80% 0.80% 1.20% 0.80% 1.20% 0.80% Beginning Subscribers - 2.061 3.769 6.117 9.201 12.794 16.181 19.358 22.320 24.813 26.827 Gross Sub- scribers Added 2.061 2.400 3.544 4.862 6.045 6.488 6.828 7.072 6.955 6.708 6.341 Deacti- vations - (0.692) (1.196) (1.778) (2.452) (3.101) (3.651) (4.110) (4.462) (4.694) (4.815) Annual % Churn 0.00% (23.74%) (24.20%) (23.21%) (22.30%) (21.40%) (20.55%) (19.72%) (18.93%) (18.18%) (17.45%) Monthly % Churn 0.00% (1.98%) (2.02%) (1.93%) (1.86%) (1.78%) (1.71%) (1.64%) (1.58%) (1.51%) (1.45%) Net Subscri- bers Added 2.061 1.708 2.348 3.084 3.593 3.387 3.177 2.962 2.493 2.014 1.526 Ending Subscribers 2.061 3.769 6.117 9.201 12.794 16.181 19.358 22.320 24.813 26.827 28.353 Average Subscribers 1.031 2.915 4.943 7.659 10.998 14.488 17.770 20.839 23.567 25.820 27.590 Total Pene- tration 0.90% 1.62% 2.60% 3.88% 5.33% 6.69% 7.94% 9.04% 9.97% 10.65% 11.17% % Penetration Growth NA 80.7% 60.9% 49.1% 37.3% 25.5% 18.7% 13.9% 10.3% 6.8% 4.8% Annual Pene- tration(1) 0.90% 0.73% 1.00% 1.30% 1.50% 1.40% 1.30% 1.20% 1.00% 0.80% 0.60% % Growth NA (18.1%) 36.2% 30.2% 15.0% (6.5%) (6.9%) (7.9%) (16.5%) (20.2%) (24.8%) (1) Defined as net subscribers added in a period divided by the population at the end of the period. Wasserstein Perella & Co. LIN BROADCASTING LIN Operating Model (Cont d) (in thousands, except per POP values) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Revenue/ Subscriber/ Month $0.00 $121.27 $103.02 $89.36 $78.16 $68.61 $64.29 $63.01 $61.76 $60.76 $59.92 % Growth NA NA (15.0%) (13.3%) (12.5%) (12.2%) (6.3%) (2.0%) (2.0%) (1.6%) (1.4%) Total Revenues $0 $4,242 $6,111 $8,213 $10,315 $11,927 $13,708 $15,758 $17,465 $18,826 $19,837 % Growth NA NA 44.1% 34.4% 25.6% 15.6% 14.9% 15.0% 10.8% 7.8% 5.4% Direct Operating Expenses $0 $1,337 $2,429 $3,294 $4,449 $5,209 $5,990 $6,861 $7,414 $7,543 $7,750 % of Revenues NA 31.5% 39.7% 40.1% 43.1% 43.7% 43.7% 43.5% 42.5% 40.1% 39.1% Cash Flow Before Marketing $0 $2,905 $3,682 $4,919 $5,866 $6,718 $7,718 $8,897 $10,051 $11,283 $12,087 Margin NA 68.5% 60.3% 59.9% 56.9% 56.3% 56.3% 56.5% 57.5% 59.9% 60.9% Sales & Marketing $0 $1,109 $1,328 $1,881 $2,153 $2,192 $2,297 $2,330 $2,203 $2,040 $1,848 % of Revenues NA 26.1% 21.7% 22.9% 20.9% 18.4% 16.8% 14.8% 12.6% 10.8% 9.3% Sales & Marketing / Gross Addition $0 $462 $375 $387 $356 $338 $336 $329 $317 $304 $291 Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $0 $2,446 $3,757 $5,175 $6,602 $7,401 $8,287 $9,191 $9,617 $9,583 $9,598 Operating Cash Flow (OCF) $0 $1,796 $2,354 $3,038 $3,713 $4,526 $5,421 $6,567 $7,848 $9,243 $10,239 Margin NA 42.3% 38.5% 37.0% 36.0% 37.9% 39.5% 41.7% 44.9% 49.1% 51.6% Depreciation & Amorti- zation $0 $2,701 $3,407 $4,054 $4,116 $3,763 $3,529 $3,333 $3,058 $2,855 $2,774 % of Revenues NA 63.7% 55.8% 49.4% 39.9% 31.6% 25.7% 21.2% 17.5% 15.2% 14.0% EBIT $0 ($905) ($1,053) ($1,016) ($403) $763 $1,892 $3,234 $4,790 $6,388 $7,465 Margin NA (21.3%) (17.2%) (12.4%) (3.9%) 6.4% 13.8% 20.5% 27.4% 33.9% 37.6% Taxes $0 ($343) ($399) ($385) ($153) $289 $718 $1,226 $1,817 $2,423 $2,831 Effective Tax Rate 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% Unlevered Net Income $0 ($562) ($654) ($631) ($250) $474 $1,174 $2,008 $2,973 $3,965 $4,634 Net Margin NA (13.2%) (10.7%) (7.7%) (2.4%) 4.0% 8.6% 12.7% 17.0% 21.1% 23.4% Free Cash Flow Unlevered Net Income $0 ($562) ($654) ($631) ($250) $474 $1,174 $2,008 $2,973 $3,965 $4,634 Depreciation & Amorti- zation $0 $2,701 $3,407 $4,054 $4,116 $3,763 $3,529 $3,333 $3,058 $2,855 $2,774 Capital Expenditures $0 ($1,967) ($2,348) ($3,083) ($719) ($677) ($635) ($592) ($499) ($403) ($305) Change In Working Capital $0 ($424) ($187) ($210) ($210) ($161) ($178) ($205) ($171) ($136) ($101) As a % of Change in Revenues NA 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $0 ($252) $218 $130 $2,937 $3,398 $3,890 $4,544 $5,362 $6,281 $7,002 Wasserstein Perella & Co. LIN BROADCASTING LIN Valuation (in thousands, except per POP values) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $16,464 $16,464 $16,464 $16,464 $16,464 $16,464 Terminal Value $38,599 $45,465 $49,835 $55,078 $61,486 $69,497 Enterprise Value $55,063 $61,929 $66,298 $71,541 $77,950 $85,960 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $55,063 $61,929 $66,298 $71,541 $77,950 $85,960 Proportionate Equity Value $55,063 $61,929 $66,298 $71,541 $77,950 $85,960 Value per Share $1.03 $1.16 $1.24 $1.34 $1.46 $1.61 Enterprise Value / POP $237.97 $267.65 $286.53 $309.19 $336.89 $371.51 Implied Exit Multiple of EBITDA 10.2x 12.0x 13.1x 14.5x 16.2x 18.3x 12.0% Present Value of Cash Flows $15,515 $15,515 $15,515 $15,515 $15,515 $15,515 Terminal Value $31,016 $35,787 $38,724 $42,150 $46,198 $51,057 Enterprise Value $46,531 $51,302 $54,239 $57,664 $61,713 $66,571 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $46,531 $51,302 $54,239 $57,664 $61,713 $66,571 Proportionate Equity Value $46,531 $51,302 $54,239 $57,664 $61,713 $66,571 Value per Share $0.87 $0.96 $1.02 $1.08 $1.16 $1.25 Enterprise Value / POP $201.10 $221.72 $234.41 $249.22 $266.72 $287.71 Implied Exit Multiple of EBITDA 8.9x 10.3x 11.1x 12.1x 13.2x 14.6x 13.0% Present Value of Cash Flows $14,633 $14,633 $14,633 $14,633 $14,633 $14,633 Terminal Value $25,337 $28,778 $30,843 $33,203 $35,925 $39,102 Enterprise Value $39,970 $43,411 $45,476 $47,836 $50,558 $53,735 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $39,970 $43,411 $45,476 $47,836 $50,558 $53,735 Proportionate Equity Value $39,970 $43,411 $45,476 $47,836 $50,558 $53,735 Value per Share $0.75 $0.81 $0.85 $0.90 $0.95 $1.01 Enterprise Value / POP $172.75 $187.62 $196.54 $206.74 $218.51 $232.24 Implied Exit Multiple of EBITDA 7.9x 9.0x 9.6x 10.4x 11.2x 12.2x 14.0% Present Value of Cash Flows $13,813 $13,813 $13,813 $13,813 $13,813 $13,813 Terminal Value $20,972 $23,527 $25,029 $26,720 $28,635 $30,825 Enterprise Value $34,785 $37,340 $38,842 $40,533 $42,448 $44,638 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $34,785 $37,340 $38,842 $40,533 $42,448 $44,638 Proportionate Equity Value $34,785 $37,340 $38,842 $40,533 $42,448 $44,638 Value per Share $0.65 $0.70 $0.73 $0.76 $0.80 $0.84 Enterprise Value / POP $150.34 $161.38 $167.87 $175.18 $183.46 $192.92 Implied Exit Multiple of EBITDA 7.1x 8.0x 8.5x 9.1x 9.7x 10.5x (1) Present values as of 6/30/95. Values per POP are based on 6/30/95E estimated POPs, which is the average of 12/31/94 and 12/31/95E POPs. (2) Assumes no debt allocated to segments, as it is consolidated at the parent level. Wasserstein Perella & Co. LIN BROADCASTING LIN Long Distance Operating Model (in thousands) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Total Revenues $16,488 $15,188 $31,618 $36,341 $40,660 $43,725 $46,839 $50,842 $54,839 $58,448 $60,307 % Growth NA (7.9%) 108.2% 14.9% 11.9% 7.5% 7.1% 8.5% 7.9% 6.6% 3.2% Direct Operating Expenses $9,811 $9,113 $18,971 $21,805 $24,396 $26,235 $28,103 $30,505 $32,903 $35,069 $36,184 % of Revenues 59.5% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% Cash Flow Before Marketing $6,677 $6,075 $12,647 $14,536 $16,264 $17,490 $18,736 $20,337 $21,936 $23,379 $24,123 Margin 40.5% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Sales & Marketing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $9,811 $9,113 $18,971 $21,805 $24,396 $26,235 $28,103 $30,505 $32,903 $35,069 $36,184 Operating Cash Flow (OCF) $6,677 $6,075 $12,647 $14,536 $16,264 $17,490 $18,736 $20,337 $21,936 $23,379 $24,123 Margin 40.5% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Depreciation & Amorti- zation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EBIT $6,677 $6,075 $12,647 $14,536 $16,264 $17,490 $18,736 $20,337 $21,936 $23,379 $24,123 Margin 40.5% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Taxes $2,537 $2,309 $4,806 $5,524 $6,180 $6,646 $7,120 $7,728 $8,336 $8,884 $9,167 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $4,140 $3,767 $7,841 $9,012 $10,084 $10,844 $11,616 $12,609 $13,600 $14,495 $14,956 Net Margin 25.1% 24.8% 24.8% 24.8% 24.8% 24.8% 24.8% 24.8% 24.8% 24.8% 24.8% Free Cash Flow Unlevered Net Income $4,140 $3,767 $7,841 $9,012 $10,084 $10,844 $11,616 $12,609 $13,600 $14,495 $14,956 Depreciation & Amorti- zation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital Expendi- tures $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Change in Working Capital $0 $130 ($1,643) ($472) ($432) ($307) ($311) ($400) ($400) ($361) ($186) As a % of Change in Revenues 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $4,140 $3,897 $6,198 $8,540 $9,652 $10,537 $11,305 $12,209 $13,201 $14,134 $14,770 Wasserstein Perella & Co. LIN BROADCASTING LIN Valuation (in thousands) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $56,915 $56,915 $56,915 $56,915 $56,915 $56,915 Terminal Value $81,425 $95,909 $105,127 $116,187 $129,706 $146,604 Enterprise Value $138,340 $152,824 $162,041 $173,102 $186,621 $203,519 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $138,340 $152,824 $162,041 $173,102 $186,621 $203,519 Proportionate Equity Value $138,340 $152,824 $162,041 $173,102 $186,621 $203,519 Value per Share $2.60 $2.87 $3.04 $3.25 $3.50 $3.82 Implied Exit Multiple of EBITDA 9.1x 10.7x 11.7x 13.0x 14.5x 16.4x 12.0% Present Value of Cash Flows $54,298 $54,298 $54,298 $54,298 $54,298 $54,298 Terminal Value $65,428 $75,494 $81,688 $88,915 $97,456 $107,704 Enterprise Value $119,725 $129,791 $135,986 $143,212 $151,753 $162,002 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $119,725 $129,791 $135,986 $143,212 $151,753 $162,002 Proportionate Equity Value $119,725 $129,791 $135,986 $143,212 $151,753 $162,002 Value per Share $2.25 $2.44 $2.55 $2.69 $2.85 $3.04 Implied Exit Multiple of EBITDA 8.0x 9.2x 9.9x 10.8x 11.9x 13.1x 13.0% Present Value of Cash Flows $51,850 $51,850 $51,850 $51,850 $51,850 $51,850 Terminal Value $53,449 $60,708 $65,063 $70,041 $75,785 $82,486 Enterprise Value $105,299 $112,558 $116,914 $121,892 $127,635 $134,336 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $105,299 $112,558 $116,914 $121,892 $127,635 $134,336 Proportionate Equity Value $105,299 $112,558 $116,914 $121,892 $127,635 $134,336 Value per Share $1.98 $2.11 $2.19 $2.29 $2.40 $2.52 Implied Exit Multiple of EBITDA 7.1x 8.0x 8.6x 9.3x 10.0x 10.9x 14.0% Present Value of Cash Flows $49,560 $49,560 $49,560 $49,560 $49,560 $49,560 Terminal Value $44,241 $49,630 $52,799 $56,365 $60,406 $65,025 Enterprise Value $93,802 $99,190 $102,360 $105,925 $109,967 $114,585 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $93,802 $99,190 $102,360 $105,925 $109,967 $114,585 Proportionate Equity Value $93,802 $99,190 $102,360 $105,925 $109,967 $114,585 Value per Share $1.76 $1.86 $1.92 $1.99 $2.06 $2.15 Implied Exit Multiple of EBITDA 6.4x 7.1x 7.6x 8.1x 8.7x 9.4x (1) Present values as of 6/30/95. (2) Assumes no debt allocated to segments, as it is consolidated at the parent level. Wasserstein Perella & Co. LIN BROADCASTING LIN: Additional Products Operating Model (in thousands) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income Statement Total Revenues $0 $0 $0 $0 $0 $0 $10,000 $22,000 $36,400 $53,680 $74,416 % Growth NM NM NM NM NM NM NM 120.0% 65.5% 47.5% 38.6% Direct Operating Expenses $0 $0 $0 $0 $0 $0 $1,000 $2,200 $3,640 $5,368 $7,442 % of Revenues NM NM NM NM NM NM 10.0% 10.0% 10.0% 10.0% 10.0% Cash Flow Before Marketing $0 $0 $0 $0 $0 $0 $9,000 $19,800 $32,760 $48,312 $66,974 Margin NM NM NM NM NM NM 90.0% 90.0% 90.0% 90.0% 90.0% Sales & Marketing $0 $0 $0 $0 $0 $0 $2,000 $4,400 $7,280 $10,736 $14,883 % of Revenues NM NM NM NM NM NM 20.0% 20.0% 20.0% 20.0% 20.0% Corporate Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues NM NM NM NM NM NM 0.0% 0.0% 0.0% 0.0% 0.0% Total Operating Expenses $0 $0 $0 $0 $0 $0 $3,000 $6,600 $10,920 $16,104 $22,325 Operating Cash Flow (OCF) $0 $0 $0 $0 $0 $0 $7,000 $15,400 $25,480 $37,576 $52,091 Margin NM NM NM NM NM NM 70.0% 70.0% 70.0% 70.0% 70.0% Depreciation & Amorti- zation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 % of Revenues NM NM NM NM NM NM 0.0% 0.0% 0.0% 0.0% 0.0% EBIT $0 $0 $0 $0 $0 $0 $7,000 $15,400 $25,480 $37,576 $52,091 Margin NM NM NM NM NM NM 70.0% 70.0% 70.0% 70.0% 70.0% Taxes $0 $0 $0 $0 $0 $0 $2,660 $5,852 $9,682 $14,279 $19,795 Effective Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Unlevered Net Income $0 $0 $0 $0 $0 $0 $4,340 $9,548 $15,798 $23,297 $32,296 Net Margin NM NM NM NM NM NM 43.4% 43.4% 43.4% 43.4% 43.4% Free Cash Flow Unlevered Net Income $0 $0 $0 $0 $0 $0 $4,340 $9,548 $15,798 $23,297 $32,296 Depreciation & Amorti- zation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital Expenditures $0 $0 $0 $0 $0 $0 ($100) ($100) ($100) ($100) ($100) Change in Working Capital $0 $0 $0 $0 $0 $0 ($1,000) ($1,200) ($1,440) ($1,728) ($2,074) As a % of Change in Revenues 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Free Cash Flow (FCF) $0 $0 $0 $0 $0 $0 $3,240 $8,248 $14,258 $21,469 $30,123 Wasserstein Perella & Co. LIN BROADCASTING LIN Valuation (in thousands) Discount Rate Perpetuity Growth Rates of Free Cash Flow 4.0% 5.0% 5.5% 6.0% 6.5% 7.0% 11.0% Present Value of Cash Flows $32,548 $32,548 $32,548 $32,548 $32,548 $32,548 Terminal Value $166,059 $195,598 $214,396 $236,954 $264,524 $298,986 Enterprise Value $198,607 $228,147 $246,944 $269,502 $297,072 $331,534 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $198,607 $228,147 $246,944 $269,502 $297,072 $331,534 Proportionate Equity Value $198,607 $228,147 $246,944 $269,502 $297,072 $331,534 Value per Share $3.73 $4.28 $4.63 $5.06 $5.57 $6.22 Implied Exit Multiple of EBITDA 8.6x 10.1x 11.1x 12.3x 13.7x 15.5x 12.0% Present Value of Cash Flows $30,237 $30,237 $30,237 $30,237 $30,237 $30,237 Terminal Value $133,434 $153,963 $166,596 $181,334 $198,752 $219,654 Enterprise Value $163,672 $184,200 $196,833 $211,571 $228,989 $249,891 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $163,672 $184,200 $196,833 $211,571 $228,989 $249,891 Proportionate Equity Value $163,672 $184,200 $196,833 $211,571 $228,989 $249,891 Value per Share $3.07 $3.46 $3.69 $3.97 $4.30 $4.69 Implied Exit Multiple of EBITDA 7.5x 8.7x 9.4x 10.2x 11.2x 12.4x 13.0% Present Value of Cash Flows $28,112 $28,112 $28,112 $28,112 $28,112 $28,112 Terminal Value $109,004 $123,808 $132,691 $142,843 $154,556 $168,222 Enterprise Value $137,116 $151,921 $160,803 $170,955 $182,669 $196,334 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $137,116 $151,921 $160,803 $170,955 $182,669 $196,334 Proportionate Equity Value $137,116 $151,921 $160,803 $170,955 $182,669 $196,334 Value per Share $2.57 $2.85 $3.02 $3.21 $3.43 $3.68 Implied Exit Multiple of EBITDA 6.7x 7.6x 8.1x 8.8x 9.5x 10.3x 14.0% Present Value of Cash Flows $26,157 $26,157 $26,157 $26,157 $26,157 $26,157 Terminal Value $90,226 $101,215 $107,680 $114,952 $123,194 $132,613 Enterprise Value $116,383 $127,372 $133,836 $141,108 $149,350 $158,769 Net Debt (2) $0 $0 $0 $0 $0 $0 Equity Value $116,383 $127,372 $133,836 $141,108 $149,350 $158,769 Proportionate Equity Value $116,383 $127,372 $133,836 $141,108 $149,350 $158,769 Value per Share $2.18 $2.39 $2.51 $2.65 $2.80 $2.98 Implied Exit Multiple of EBITDA 6.0x 6.7x 7.2x 7.7x 8.2x 8.8x (1) Present values as of 6/30/95. (2) Assumes no debt allocated to segments, as it is consolidated at the parent level. Wasserstein Perella & Co. LIN BROADCASTING LIN s Organizational Structure Wasserstein Perella & Co. LIN BROADCASTING Overview See LIN Broadcasting Corporation Organization Chart Wasserstein Perella & Co. LIN BROADCASTING LIN Cellular Group See LIN Cellular Group Organization Chart Wasserstein Perella & Co. LIN BROADCASTING LIN California Group See LIN California Group Organization Chart Wasserstein Perella & Co. LIN BROADCASTING LIN Texas Group See LIN Texas Group Organization Chart Wasserstein Perella & Co. LIN BROADCASTING LIN Satellite Group See LIN Satellite Group Structure Chart Wasserstein Perella & Co. /TABLE EXHIBIT (b)(6) Letter delivered by Bear Stearns & Co., Inc. to the LIN Independent Directors, dated April 28, 1995. The following is the full text of a letter delivered by Bear Stearns to the three LIN Independent Directors on April 28, 1995: Committee of Independent Directors LIN Broadcasting Corporation 5295 Carillon Point Kirkland, WA 98033 Attention: William G. Herbster Wilma H. Jordan Richard W. Kislik Ladies and Gentlemen: We understand that, pursuant to the Private Market Value Guarantee (the "PMVG"), dated December 11, 1989, between LIN Broadcasting Corporation ("LIN") and McCaw Cellular Communications, Inc. ("McCaw"), which has since been acquired by AT&T Corp. ("AT&T"), AT&T, the beneficial owner of approximately 52% of the outstanding shares of LIN, has proposed (the "AT&T Proposal") to purchase all Public Shares (as defined in the PMVG) in accordance with the process set forth in the PMVG. Acting jointly with Lehman Brothers Inc. ("Lehman") as the Independent Directors' Appraiser (as defined in the PMVG), pursuant to the PMVG, we have previously determined and delivered to you, in our separate letters of February 15, 1995 (the "February 15 Letters"), our "final view" of "private market value per Share" (as defined in the PMVG). You have requested our view, acting jointly with Lehman, as to whether there is a substantial likelihood that the price at which Public Shares would initially trade, on a fully distributed basis, would be less than $127.50 per share, assuming the AT&T Proposal were not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders (as defined in the PMVG) and assuming no change in market, economic, financial and other conditions (including, without limitation, conditions affecting the cellular industry generally or LIN specifically) as they exist on and can be evaluated as of the date hereof. Based on (i) the factors set forth in the February 15 Letters, which factors we considered as of such date in connection with our arriving at our view of "private market value per Share," (ii) certain additional factors we have considered and analyses we have performed as of the date hereof, including a review of (a) the Form 10-K of LIN for the year ended December 31, 1994, and other publicly available financial data, stock market performance data, ownership profiles and valuation parameters of LIN that have been made available since the date of the February 15 Letters and that we deemed relevant, (b) publicly available financial data, stock market performance data, ownership profiles and valuation parameters of certain other companies that have been made available since the date of the February 15 Letters and that we deemed relevant, (c) Wall Street research analysts' views of the public market trading value of LIN's stock in the event the AT&T Proposal is not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders and (d) such other analyses that we deemed relevant and (iii) the ongoing protections afforded to thc holders of Public Shares under the PMVG in the event that the AT&T Proposal is not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders, and subject to the succeeding paragraphs of this letter and the general qualifications and assumptions set forth in the February 15 Letters, it is our view that, assuming (x) the vote of the holders of Public Shares regarding the AT&T Proposal were held and the AT&T Proposal failed to be approved by a Majority Vote of the Public Stockholders, (y) Public Shares held by arbitrageurs and others who are holding such shares in anticipation of consummation of the AT&T Proposal or an alternative transaction were fully redistributed and (z) there were no change in market, economic, financial and other conditions (including, without limitation, conditions affecting the cellular industry generally or LIN specifically) as they exist on and can be evaluated as of the date hereof, there is a substantial likelihood that the price at which Public Shares would initially trade would be less than $127.50 per share. The estimation of public market trading prices of securities is subject to uncertainties and contingencies, all of which are difficult to predict and beyond the control of the firm making such estimates. The market prices of securities will fluctuate with changes in market conditions, the conditions and prospects of the industry and the particular company involved, and other factors which generally influence the prices of securities. Our view is necessarily based on market, economic, financial and other conditions as they exist on and can be evaluated as of the date hereof. In addition, we have assumed, with your permission, that AT&T has no intention to acquire Public Shares in the event that the AT&T Proposal is not consummated. There can be no assurance that our view expressed herein will conform with actual public market trading prices of LIN's shares. Our view stated herein does not constitute an opinion as to the fairness of the AT&T Proposal in any respect, and does not constitute a recommendation to any shareholder of LIN as to how such shareholder should vote on the AT&T Proposal. We and Lehman will each receive a fee for acting jointly as the Independent Directors' Appraiser in connection with the appraisal process specified in the PMVG, payment of a significant portion of which is contingent upon the consummation of the acquisition of Public Shares by AT&T or an acquisition of LIN by a third party. In addition, LIN has agreed to indemnify us and Lehman for certain liabilities which may arise out of the rendering of this letter. We have performed various investment banking services for AT&T in the past (including the underwriting of debt and equity securities) and have received customary fees for such services. In the ordinary course of our business we actively trade the debt and equity securities of LIN and AT&T for our account and for the accounts of our customers and, accordingly, at any time hold a long or short position in such securities. This letter is solely for the use of LIN and the Independent Directors in connection with the PMVG, and may not be used for any other purpose or relied upon by any third party without the prior written approval of both us and Lehman, although this letter may be disclosed, but only in its entirety, in filings made by LIN with the Securities and Exchange Commission and in communications by LIN to its shareholders (or, if not disclosed in its entirety, then only with the prior written approval of both us and Lehman, which approval will not be unreasonably withheld). Very truly yours, BEAR STEARNS & CO INC. By: /s/ Pierce J. Roberts --------------------------- Senior Managing Director EXHIBIT (b)(7) Letter delivered by Lehman Brothers Inc. to the LIN Independent Directors, dated April 28, 1995. The following is the full text of a letter delivered by Lehman Brothers to the three LIN Independent Directors on April 28, 1995: Committee of Independent Directors LIN Broadcasting Corporation 5295 Carillon Point Kirkland, WA 98033 Attention: William G. Herbster Wilma H. Jordan Richard W. Kislik Ladies and Gentlemen: We understand that, pursuant to the Private Market Value Guarantee (the "PMVG"), dated December 11, 1989, between LIN Broadcasting Corporation ("LIN") and McCaw Cellular Communications, Inc. ("McCaw"), which has since been acquired by AT&T Corp. ("AT&T"), AT&T, the beneficial owner of approximately 52% of the outstanding shares of LIN, has proposed (the "AT&T Proposal") to purchase all Public Shares (as defined in the PMVG) in accordance with the process set forth in the PMVG. Acting jointly with Bear, Stearns & Co. Inc. ("Bear Stearns") as the Independent Directors' Appraiser (as defined in the PMVG), pursuant to the PMVG, we have previously determined and delivered to you, in our separate letters of February 15, 1995 (the "February 15 Letters"), our "final view" of "private market value per Share" (as defined in the PMVG). You have requested our view, acting jointly with Bear Stearns, as to whether there is a substantial likelihood that the price at which Public Shares would initially trade, on a fully distributed basis, would be less than $127.50 per share, assuming the AT&T Proposal were not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders (as defined in the PMVG) and assuming no change in market, economic, financial and other conditions (including, without limitation, conditions affecting the cellular industry generally or LIN specifically) as they exist on and can be evaluated as of the date hereof. Based on (i) the factors set forth in the February 15 Letters, which factors were considered as of such date in connection with our arriving at our view of "private market value per Share," (ii) certain additional factors we have considered and analyses we have performed as of the date hereof, including a review of (a) the Form 10-K of LIN for the year ended December 31, 1994, and other publicly available financial data, stock market performance data, ownership profiles and valuation parameters of LIN that have been made available since the date of the February 15 Letters and that we deemed relevant, (b) publicly available financial data, stock market performance data, ownership profiles and valuation parameters of certain other companies that have been made available since the date of the February 15 Letters and that we deemed relevant, (c) Wall Street research analysts' views of the public market trading value of LIN's stock in the event the AT&T Proposal is not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders and (d) such other analyses that we deemed relevant and (iii) the ongoing protections afforded to the holders of Public Shares under the PMVG in the event that the AT&T Proposal is not consummated by reason of the AT&T Proposal not being approved by a Majority Vote of the Public Stockholders, and subject to the succeeding paragraphs of this letter and the general qualifications and assumptions set forth in the February 15 Letters, it is our view that, assuming (x) the vote of the holders of Public Shares regarding the AT&T Proposal were held and the AT&T Proposal failed to be approved by a Majority Vote of the Public Stockholders, (y) Public Shares held by arbitrageurs and others who are holding such shares in anticipation of consummation of the AT&T Proposal or an alternative transaction were fully redistributed and (z) there were no change in market, economic, financial and other conditions (including, without limitation, conditions affecting the cellular industry generally or LIN specifically) as they exist on and can be evaluated as of the date hereof, there is a substantial likelihood that the price at which Public Shares would initially trade would be less than $127.50 per share. The estimation of public market trading prices of securities is subject to uncertainties and contingencies, all of which are difficult to predict and beyond the control of the firm making such estimates. The market prices of securities will fluctuate with changes in market conditions, the conditions and prospects of the industry and the particular company involved, and other factors which generally influence the prices of securities. Our view is necessarily based on market, economic, financial and other conditions as they exist on and can be evaluated as of the date hereof. In addition, we have assumed, with your permission, that AT&T has no intention to acquire Public Shares in the event that the AT&T Proposal is not consummated. There can be no assurance that our view expressed herein will conform with actual public market trading prices of LIN's shares. Our view stated herein does not constitute an opinion as to the fairness of the AT&T Proposal in any respect, and does not constitute a recommendation to any shareholder of LIN as to how such shareholder should vote on the AT&T Proposal. We and Bear Stearns will each receive a fee for acting jointly as the Independent Directors' Appraiser in connection with the appraisal process specified in the PMVG, payment of a significant portion of which is contingent upon the consummation of the acquisition of Public Shares by AT&T or an acquisition of LIN by a third party. In addition, LIN has agreed to indemnify us and Bear Stearns for certain liabilities which may arise out of the rendering of this letter. We have in the past performed various investment banking services for the Committee of Independent Directors, for which we have received customary fees. We have performed various investment banking services for AT&T in the past (including the underwriting of debt and equity securities) and have received customary fees for such services. In the ordinary course of our business we actively trade the debt and equity securities of LIN and AT&T for our account and for the accounts of our customers and, accordingly, at any time hold a long or short position in such securities. This letter is solely for the use of LIN and the Independent Directors in connection with the PMVG, and may not be used for any other purpose or relied upon by any third party without the prior written approval of both us and Bear Stearns, although this letter may be disclosed, but only in its entirety, in filings made by LIN with the Securities and Exchange Commission and in communications by LIN to its shareholders (or, if not disclosed in its entirety, then only with the prior written approval of both us and Bear Stearns, which approval will not be unreasonably withheld). Very truly yours, LEHMAN BROTHERS INC. By: /s/ Jill Greenthal ----------------------- Managing Director EXHIBIT (c)(3) Memorandum of Understanding, dated June 22, 1995, with respect to the proposed settlement of litigation. MEMORANDUM OF UNDERSTANDING WHEREAS there is now pending the consolidated action entitled In re LIN Broadcasting Corporation Shareholders Litigation, Consolidated C.A. No. 14039, and the action entitled Unger v. MMM Holdings, Inc., et al., C.A. No. 14123, in the Court of Chancery of the State of Delaware, New Castle County (the "Delaware Actions"), and the actions entitled Katz v. Allen, et al., Index No. 95-104259, Luke v. Wasserstein Perella & Co., et al., Index No. 95-105973, and Frank v. Alberg, et al., Index No. 95-108949, in the Supreme Court of the State of New York, County of New York (the "New York Actions") (collectively, the "Actions"). WHEREAS the Actions were filed as putative class actions on behalf of holders of LIN Common Shares, naming as defendants AT&T Corp. ("AT&T"), McCaw Cellular Communications, Inc. ("McCaw"), a wholly-owned subsidiary of AT&T, MMM Holdings, Inc. ("MMM"), a wholly-owned subsidiary of McCaw, certain individual officers and directors of AT&T, McCaw and LIN, Wasserstein Perella & Co. Inc. and Morgan Stanley & Co. Incorporated. WHEREAS the Actions variously seek injunctive relief, monetary damages and/or rescission on the grounds that the conduct of the various defendants in connection with a proposed plan of merger among LIN, McCaw and two subsidiaries of McCaw (the "Merger") and the determination of the private market value of the LIN Common Shares pursuant to the Private Market Value Guarantee entered into between LIN and McCaw in 1989 (the "PMVG"), which private market value was determined to be $127.50 per LIN Common Share and proposed as consideration in the Merger, constitutes, inter alia, a breach of the PMVG, unjust enrichment, and a breach of fiduciary duties. WHEREAS there is now pending an action entitled Newman v. McCaw Cellular Communications and AT&T Corp., C.A. No. 95 Civ. 1583, in the United States District Court for the Southern District of New York (the "Federal Action") that asserts certain federal claims and plaintiff has filed a Notice of Dismissal of the Federal Action seeking to voluntarily dismiss the Federal Action without prejudice and without costs. WHEREAS, following extensive negotiations, counsel for the parties have reached an agreement in principle providing for the settlement of the Actions (the "Settlement") on the terms and subject to the conditions set forth below. WHEREAS counsel for the parties believe that the Settlement is in the best interests of the parties and the LIN stockholders. IT IS HEREBY AGREED IN PRINCIPLE AS FOLLOWS: 1. Instead of the transaction previously contemplated, as a result of the aforesaid litigation, McCaw has agreed, if the Settlement contemplated herein is consummated, to pay in the Merger $129.50 per LIN Common Share, plus up to an additional $.25 per LIN Common Share as contemplated by paragraph 6 hereof (the "Merger Consideration"), at least $2.00 per LIN Common Share above the private market value determined pursuant to the PMVG, representing an aggregate increase of approximately $60 million over the PMVG private market value. If the Merger has not been completed by September 15, 1995, McCaw will pay simple interest on the Merger Consideration at an annual rate of 5-1/2% from September 15, 1995 to the closing of the Merger. As conditions to the Settlement, the terms of the Settlement must be approved by the Independent Directors, the Independent Directors must assent to the scheduled conversion by certain LIN systems to equal access and the marketing of certain LIN services under the AT&T name pending the Merger, and LIN must receive a fairness opinion at or around the date of approval of the Merger Agreement by the LIN Board from a mutually acceptable investment banking firm as to the fairness of the Merger Consideration. The parties agree that Wasserstein Perella & Co. is an acceptable investment banking firm for purposes of the preceding sentence. 2. The parties to the Actions will attempt in good faith to agree upon and execute an appropriate Stipulation of Settlement (the "Stipulation") and such other documentation as may be required in order to obtain final Court approval of the Settlement and the dismissal of the Actions upon the terms set forth in this Memorandum of Understanding. As part of the Settlement, plaintiffs shall file a consolidated amended complaint in the consolidated Delaware Action incorporating the allegations made in the New York Actions. 3. The parties to the respective Actions will present the Settlement to the Delaware Court of Chancery for approval as soon as practicable following appropriate notice to the stockholders of LIN on whose behalf the Actions were instituted, and will use their best efforts to obtain final Court approval of the Settlement and the dismissal of the Actions pending in the Delaware and New York state courts with prejudice as to all claims asserted in the Actions as against the named plaintiffs and the stockholders of LIN on whose behalf the Actions were brought with no right to opt-out of the Settlement and without costs to any party (except as provided in paragraph 6 below). The Stipulation will expressly provide, inter alia, for entry of a judgment and for a complete release and settlement of all claims against defendants and their predecessors, successors, parents, subsidiaries, affiliates and agents (including, without limitation, any investment bankers or attorneys and any past, present or future officers, directors or employees of defendants and their predecessors, successors, parents, subsidiaries, affiliates and agents) which have been, or could have been, asserted relating to the Merger, the actions of the LIN Board of Directors relating to the AT&T/McCaw Merger, the PMVG, the proxy statement, the actions of the Board of Directors of AT&T, McCaw or LIN relating to the Merger, or any of the transactions, disclosures, facts and allegations that are the subject of the Actions; that defendants have denied and continue to deny that they have committed or attempted to commit any violations of law or breaches of duty to LIN or its stockholders; and that defendants are entering into the Stipulation solely because the proposed Settlement as described above would eliminate the burden and expense of further litigation and is in the best interests of LIN and all its stockholders. As used herein, "final Court approval" of the Settlement means that the Delaware Court of Chancery has entered an order approving the Settlement and the New York Court has entered orders dismissing the New York Actions with prejudice and each of such orders is finally affirmed on appeal or is no longer subject to appeal. 4. The consummation of the Settlement is subject to: (a) the drafting and execution of an appropriate Stipulation and such other documentation as may be required to obtain final Court approval of the Settlement; (b) the completion by plaintiffs of appropriate confirmatory discovery in the Actions reasonably satisfactory to plaintiffs' counsel; and (c) final Court approval of the Settlement and dismissal of the Actions with prejudice and without awarding costs to any party (except as provided in paragraph 6 below). This Memorandum of Understanding shall be null and void and of no force and effect should any of these conditions not be met or should plaintiffs' counsel in the Actions determine that the Settlement is not fair and reasonable and, in that event, this Memorandum of Understanding shall neither be deemed to prejudice in any way the positions of the parties with respect to the Actions nor entitle any party to recover any costs or expenses incurred in connection with the implementation of this Memorandum of Understanding. 5. The Settlement contemplated hereby shall be conditioned upon consummation of the Merger. In addition, the Settlement contemplated hereby will not be binding upon any party if the Merger Agreement is terminated in accordance with its terms. AT&T and McCaw shall have the option to withdraw from the Settlement in the event that the Merger is terminated or in the event that final Court approval of the Settlement has not been obtained by November 30, 1995. 6. Plaintiffs' counsel intend to apply to the Delaware Court of Chancery for an award of attorneys' fees and reasonable out-of-pocket disbursements (together, the "Fees"). Subject to the terms and conditions of this Memorandum of Understanding and the Stipulation of Settlement contemplated by paragraphs 2 and 5 above, plaintiffs' counsel will apply for a fee of up to $4 million plus $.25 per LIN public share, which will not be opposed by the parties. If the Court finally awards a total fee of $4 million or less, McCaw will pay that amount to the plaintiffs' attorneys and an additional $.25 per LIN public share will be paid to the LIN public stockholders as additional Merger Consideration. If the Court finally awards a total fee of more than $4 million, the amount in excess of $4 million will be deducted from the $.25 per LIN public share and, if any amount remains after such deduction, the remaining amount will be paid to the public stockholders as additional Merger Consideration. If final Court approval of the settlement is obtained but the amount of the attorneys' fee is still in dispute, McCaw will close the Merger and pay $129.50 per LIN public share plus accrued interest, if any, in the Merger. In such case, the additional amount of $.25 per LIN public share will be deposited into an interest bearing account. Following final Court determination of the attorneys' fee, the amount in such account (including pro rata interest) will be paid in whole or in part to the plaintiffs' attorneys and/or in whole or in part to the public stockholders who receive the Merger Consideration, as ordered by the Delaware Court. In the event that the Merger is consummated and, for whatever reason, plaintiffs' counsel is not yet entitled to the payment of the Fees, McCaw shall pay the lesser of $4 million or the amount of Fees awarded by the Delaware Court within five days after the consummation of the Merger into an interest bearing escrow account and, upon the receipt of final Court approval, shall cause the amount finally awarded by the Court, together with any interest, to be paid to plaintiff's counsel. McCaw shall pay the costs and expenses related to providing notice of the Settlement to the LIN stockholders. Dated: June 22, 1995 ABBEY & ELLIS /s/ ------------------------------------- By Arthur Abbey 212 East 39th Street New York, NY 10016 (212) 889-3700 Member of Plaintiffs' Executive Committee in the Delaware Action and Attorneys for Plaintiff Frank in the New York Action WOLF POPPER ROSS WOLF & JONES, L.L.P. /s/ ------------------------------------- By Lester L. Levy 845 Third Avenue New York, NY 10022 (212) 759-4600 Co-Chair of the Plaintiffs' Executive Committee in the Delaware Action and on behalf of the plaintiffs in the Katz, Luke and Unger Actions BERNSTEIN LIEBHARD & LIFSHITZ /s/ ------------------------------------- By Stanley D. Bernstein 274 Madison Avenue New York, NY 10016 (212) 779-1414 Co-Chair of the Plaintiffs' Executive Committee in the Delaware Action and on behalf of the plaintiffs in the Katz, Luke and Unger Actions WACHTELL, LIPTON, ROSEN & KATZ /s/ ------------------------------------- By Marc Wolinsky 51 West 52nd Street New York, NY 10019 (212) 403-1000 Attorneys for Defendants AT&T Corp., McCaw Cellular Communications, Inc. MMM Holdings, Inc. and the Individual Director Defendants of AT&T, McCaw and LIN (except the LIN Independent Director Defendants) -----END PRIVACY-ENHANCED MESSAGE-----