AT&T Buys Straight Path in $1.6 Billion Deal for 5G Arsenal

  • No. 2 U.S. carrier seeking to take lead in mobile speed race
  • Straight Path, with FCC fines piling up, had incentive to sell

Will M&A Pick-Up for the Remainder of 2017?

AT&T Inc. agreed to buy embattled spectrum-license holder Straight Path Communications Inc. in an all-stock deal valued at $1.6 billion as the phone giant seeks to take the lead in the 5G network race.

Straight Path is one of the largest holders of 28 gigahertz and 39 GHz millimeter-wave spectrum -- frequencies the U.S. Federal Communications Commission has already approved to power the fifth-generation of wireless services, or 5G.

With 5G, faster connections and greater capacity will help carriers like AT&T offer internet speeds competitive with cable-TV operators while relieving congestion created by consumers who demand Netflix video and live sports streamed directly to their phones. The carriers and gear-makers like Ericsson, Nokia Oyj, Qualcomm Inc. and Intel Corp. are projected to invest a collective $200 billion a year on 5G, according to IHS estimates, and AT&T is planning to build a 5G network using so-called millimeter-wave spectrum.

The deal marks the second acquisition of high-frequency airwaves by AT&T this year. In January, the Dallas-based telecom behemoth purchased FiberTower Corp., which holds licenses for 24 GHz and 39 GHz bands of airwaves.

Straight Path’s spectrum licenses will allow AT&T to better compete with Verizon Communications Inc. and T-Mobile US Inc. as 5G networks roll out over the next several years. Straight Path has billed itself as a leader in providing high-frequency airwaves for carrying traffic that will grow as the 5G and the so-called Internet of things blossoms: The company is the third-largest owner of spectrum licenses for airwaves that have been approved by the FCC for flexible use with an eye toward 5G.

Verizon still has a wide lead against rivals in coverage with 28 GHz spectrum. Wireless carriers use a measurement called megahertz-POP -- the amount of bandwidth multiplied by the potential number of people covered by the airwaves. Verizon owns almost 200 billion Mhz-POP of 28 GHz spectrum, more than 600 MHz on average nationally. T-Mobile controls 97.4 billion and Straight Path has 39.7 billion, according to a Bloomberg Intelligence analysis.

“Many believe this ultra-high band spectrum will be key in a 5G world,” Wells Fargo analyst Jennifer Fritzsche wrote in a note. “This spectrum is for fixed wireless and is the basis of Verizon’s 5G strategy.”

Straight Path had a big incentive to sell following a settlement earlier this year with the FCC. After finding the company had misrepresented the progress of putting its spectrum to use, the commission imposed a $15 million fine and ordered Straight Path to transfer its 28 GHz and 39 GHz spectrum licenses by January 2018 and pay 20 percent of the proceeds from the sales. If it doesn’t, the company would have to fork over an additional $85 million or relinquish those airwaves back to the agency.

Straight Path’s airwaves were originally purchased in 2001 from Winstar Communications Inc., a wireless service provider that went bust at the tail end of the internet and telecommunications bubble. The buyer, IDT Corp., spun off its spectrum holdings into the new company, Straight Path, a dozen years later.

204% Premium

AT&T will acquire Straight Path for $95.63 a share in an all-stock merger designed to be a tax-free reorganization, according to a statement Monday. That’s a 204 percent premium to Straight Path’s closing price of $31.41 on Jan. 11, the day before the company entered into a settlement with the FCC, and a 162 percent premium to its closing price of $36.48 Friday.

Shares of Straight Path soared to as high as $92 following the announcement, their highest price ever. AT&T stock was little changed Monday.

Howard Jonas, who has retained control of Straight Path, agreed to vote his Class A shares that are held through a trust in support of the transaction, according to the statement.

The total value of the deal includes liabilities and the amounts owed to the FCC. The transaction needs clearance from the FCC. Mark Wigfield, an agency spokesman, declined to comment.

Evercore served as exclusive financial adviser to Straight Path. Weil, Gotshal & Manges LLP served as company counsel on the deal.

— With assistance by Todd Shields

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