Why AT&T Just Paid a 200% Premium for an Independent Spectrum Owner

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Most investors likely have not heard of a company called Straight Path Communications Inc. (NYSEMKT: STRP). This company is one of the largest holders of 28 GHz and 39 GHz millimeter wave spectrum, and now it is getting a 200% premium acquisition by AT&T Inc. (NYSE: T).

The two companies have signed a definitive merger agreement in an all-stock transaction of AT&T stock that valued Straight Path Communications at $95.63 per share. The merger, as an all-stock transaction, is also listed as a tax-free reorganization, whereby Straight Path holders can become AT&T shareholders.

This merger has been approved by the board of directors of both companies. Straight Path’s board had previously announced a strategic alternatives process to maximize shareholder value, and the deal officially ends that process.

This aims to place AT&T in a better spectrum position to compete against Verizon and Sprint. Straight Path’s spectrum map (see below) also covers most of the country when you count its state and various spectrum.

It is not usual to see companies pay a 200% premium in an equity deal value of $1.25 billion. The transaction value is said to have a total value of $1.6 billion, if you include the liabilities and amounts to be paid to the FCC per the terms of Straight Path’s January 2017 consent decree. The actual terms stated:

Stock consideration received by Straight Path shareholders will be based on a variable number of AT&T common stock issued at transaction close to ensure fixed consideration of $95.63 per share. The companies anticipate a closing within 12 months, subject to FCC review. The transaction is supported by Straight Path’s majority shareholder, Howard Jonas, who has entered into a voting agreement with AT&T and agreed to vote his Class A shares (held through a trust) in support of the transaction, subject to certain limitations.

Straight Path became an independent public company back in 2013, with an initial price per share of $6.40.

A coverage map of Straight Path’s spectrum has been provided below.

Source: Straight Path