Perhaps the biggest area of contention between bulls and bears over the last few years – after Herbalife and Valeant Pharmaceuticals International, of course – has been the world of commercial spectrum. Early in March, Activist Insight Monthly profiled one stock in the midst of that battle: Straight Path Communications STRP. Hype around new investments in 5G technology is probably unjustified said short sellers, including Kerrisdale Asset Management. “Potentially, there are buyers for Straight Path’s licences, but purchasing has a price,” Kerrisdale’s Sahm Adrangi told us. “The 5G technology is so far away. I don’t think that potential bidders are so desperate to pay a lot of money.”
On Monday, Straight Path was bought for $1.6 billion by AT&T – about four-times its market cap at the time our story came out. Now, everyone is looking to Globalstar – another Kerrisdale short target. That stock rose 15% on news of Straight Path’s acquisition, before returning sharply to earth. As Activist Insight Monthly’s article made clear, the risks for short sellers are significant.
Via Activist Insight
We have long thought T was in the early innings of its fiber deployment, and this announcement gives us more conviction in this view. It is worth noting this fiber build or leasing could even occur outside of its incumbent footprint to realize the full benefits of this spectrum. This would be a positive for the fiber players and those that trench the fiber.
Straight Path was considered a ‘forced’ seller of its licenses based on a consent decree with the FCC related to a violation of build-out and discontinuance rules. This said, the company had a year from its settlement in January to identify a buyer and the process appears to have concluded speedily. AT&T’s acquisition of Straight Path supports our view that the company spent less than its estimated $2.4bn deposit in the 600MHz auction. We believe TMUS, DISH and Comcast will emerge as the high bidders in the auction, which raised $19.8bn in proceeds.
The transaction has a total value of $1.6bn and represents ~160% premium to Friday’s close. We believe there was at least one other bidder. AT&T will acquire 735 mmWave licenses in the 39GHz band and 133 mmWave licenses in the 28GHz
band. The transaction is expected to close within 12 months, subject to an FCC review. STRP was spun-out in 2013 from IDT, which originally acquired the spectrum from Winstar.
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