In re Cellular Information Systems, Inc.

Cellular Information Systems, Inc. (Cellular) (plaintiff) and its bank creditors (the banks) (defendants) each filed reorganization plans in bankruptcy court. Before weighing the merits of the rival reorganization plans, the bankruptcy court determined that it must first hear testimony concerning Cellular’s going-concern value. Cellular asserted a going-concern value within the range of $134 to $159 million, while the banks disputed Cellular’s claim with an estimate of $101.4 million. According to the banks’ expert witnesses, Cellular inadequately considered the impact of competitive financing, marketing, and demographic pressures when calculating its roamer-revenue and home-subscriber-revenue estimates. This, the banks alleged, resulted in Cellular making unrealistically high anticipated-future-cash-flow predictions. Moreover, the banks estimated a discount rate of 14 percent for Cellular’s business, while Cellular estimated a discount rate between 12.5 percent and 17.5 percent. Thus, the banks assigned greater risk to Cellular’s business than did Cellular. Likewise, Cellular’s lower projection of future business risk, despite Cellular’s disadvantages within the industry, resulted in more favorable terminal-multiple values than the banks’ more sober calculation. Banks’ terminal-multiple-values calculation, by contrast, accounted for competitive pressures, although both Cellular’s and the banks’ calculations involved some degree of error. The court thereafter considered the arguments of both Cellular and the banks in determining Cellular’s going-concern value, as a prerequisite for ruling on the competing reorganization plans.