Straight Path Communications shares soared more than 20% Thursday morning after the company announced it had struck an agreement to be acquired by Verizon Communications for $184 per share, an all-stock deal that represents an enterprise value of about $3.1 billion.
The definitive agreement, announced today, means that Verizon was successful in outbidding AT&T for Straight Path, a company with 39 GHz and 28 GHz millimeter wave spectrum that has increased in value as it becomes prime real estate for new 5G services.
Under the new deal, Verizon will pay the on behalf of Straight Path a break-up fee of $38 million to AT&T. The boards of Verizon and Straight Path have signed off on the deal. AT&T originally put in a bid of $95.63 per share, or an enterprise value of $1.6 billion.
On Monday, Straight Path announced that its board has determined that a rival bid from a “multi-national telecommunications company,” believed then to be Verizon Communications, was superior to the one it had in hand from AT&T.
AT&T informed Straight Path that, after much deliberation, it has determined not to make any new bids or proposals to Straight Path or to propose any amendments to its earlier merger agreement, Straight Path said.
The price Verizon is paying implies a premium of 486% of the closing price of Straight Path common stock of $31.41 on Jan. 11, 2017, the day before the company announced a settlement with the FCC and the plan to pursue strategic alternatives for the company. The FCC settlement resolved an investigation into Straight Path’s failure to deploy wireless services as required under its FCC spectrum licenses.
The price Verizon is paying is also a 404% premium to the closing price of Straight Path shares of $36.48 on April 7, the day before it first entered a merger deal with AT&T.
Shares in Straight Path were up $45.93 (20.52%) to $177.86 each in morning trading Thursday.
Verizon and Straight Path expect to close the deal within nine months, subject to FCC review.
In a blog post earlier this week, MoffettNathanson analyst Craig Moffett remarked the bidding war that commenced caused the value of millimeter wave spectrum to rise from about $0.009 per MHz-POP, to $0.017 per MHz-POP.
“We have repeatedly written that spectrum cannot be thought of as a simple commodity. The value of spectrum is what a buyer is willing to pay,” he pointed out.
As a bonus, he added, the owners of Straight Path’s spectrum will have leverage in working with the FCC to repackage the spectrum for an upcoming auction, though the FCC will still have to approve a license transfer.
But the “sudden infatuation” with Straight Path’s spectrum also means that “the carriers are serious about their efforts in moving ahead with millimeter wave spectrum. In Verizon’s case – assuming that it really is Verizon bidding here – it may not be an overstatement to suggest that millimeter wave may soon be the foundation of their entire strategy,” Moffett wrote, adding that it’s also good news for T-Mobile, as it’s likely to see the value of the 28 GHz licenses it inherited from MetroPCS to also soar.