Blog Coverage: Verizon Acquires 5G Wireless Spectrum Holder Straight Path Communications by Outbidding AT&T

LONDON, UK / ACCESSWIRE / May 12, 2017 / Active Wall St. blog coverage looks at the headline from Verizon Communications Inc. (NYSE: VZ) and Straight Path Communications Inc. (NYSE: STRP). Verizon Communications announced on May 11, 2017, that it has signed an agreement to acquire Straight Path Communications. The all-stock deal is valued at $3.1 billion. Straight Path also announced the termination of its merger agreement with AT&T in view of the current development. Register with us now for your free membership and blog access at:

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Glen Allen, Virginia based Straight Path is a holder of millimeter wave spectrum which is configured for 5G wireless services. The Company holds licences for 39 GHz and 28 GHz millimeter wave spectrum.

In January 2017, Straight Path paid over $100 million as settlement to the FCC following a review by the regulatory body. The FCC had agreed to the settlement as Straight Path was squatting on wireless spectrum licenses. FCC mandates that the holders of spectrum licenses should use them for their intended purpose.

Commenting on the acquisition, Hans Vestberg, Executive Vice President and President of Global Network and Technology of Verizon said:

“Verizon now has all of the pieces in place to quickly accelerate the deployment of 5G. Combined with our recent transactions with Corning Incorporated, XO Communications, and Prysmian Group, this is another step to build the next-generation network for our customers.”

The details of the transaction

As per terms of the agreement, Verizon will pay $184 for each share of Straight Path. The offer price is at a 404% premium to the closing stock price of Straight Path of $36.48 on April 07, 2017, the business day before it signed the merger agreement with AT&T. The Boards of Directors of both Straight Path and Verizon have approved the merger. Howard Jonas, who is a majority shareholder of Straight Path, has already signed a voting agreement to vote in favor of the merger. The transaction is expected to be completed within the next nine months and is subject to the review by the US Federal Communications Commission (FCC).

Verizon will also pay AT&T a termination fee of $38 million on behalf of Straight Path. The termination fee is to be paid by Straight Path for breaking off its merger agreement with AT&T.

Straight Path’s deal with AT&T

On April 10, 2017, Straight Path announced that it had signed a merger agreement with AT&T and Switchback Merger Sub Inc. AT&T had offered to acquire Straight Path in an all-stock transaction for $95.63 per share. The transaction had an enterprise value of $1.6 billion. The transaction was expected to close within 12 months, subject to FCC review.

After signing of the agreement with AT&T, Straight Path received an unsolicited offer of acquisition from a multi-national telecom Company, whose name was not disclosed, on April 25, 2017, for $104.64 per share. The same Company made a revised offer of $135.96 per share on May 03, 2017, and this was followed by another offer from the same Company for $184 per share on May 08, 2017.

After receiving the “superior offers”, Straight Path Board of Directors consulted their financial and legal advisors and after considering all options determined that the Verizon offer was much superior to AT&T’s proposal. Consequently, Straight Path decided to terminate its agreement with AT&T.

Under the circumstances, AT&T informed Straight Path that it would not be making any counter proposals nor making any changes to their merger agreement.

Benefits for Verizon

Currently, 5G services are still in a nascent stage and are far away from reality. However, telecom Companies are shoring up spectrum to meet their future 5G requirements as demand for data multiplies. Spectrum licenses have an important role in laying the foundation for 5G services. Verizon will be able to offer higher speed of data on its network with more capacity. By developing next-generation 5G broadband services, Verizon will get a distinct advantage over its competitors.

In February 2016, Verizon acquired fiber-optic network business of XO Communications for approximately $1.8 billion. Verizon is making these strategic acquisitions with an aim of preparing for 5G services.

Stock Performance

At the close of trading session on Thursday, May 11, 2017, Verizon’s stock price marginally fell 0.78% to end the day at $46.02. A total volume of 12.43 million shares were exchanged during the session. The Company’s shares are trading at a PE ratio of 15.33 and have a dividend yield of 5.02%. The stock currently has a market cap of $188.84 billion.

On Thursday, the stock closed the trading session at $178.11, tumbling 20.41% from its previous closing price of $223.79. A total volume of 1.93 million shares have exchanged hands, which was higher than the 3-month average volume of 431.69 thousand shares. Straight Path Communications’ stock price rocketed 95.34% in the last month, 453.48% in the past three months, and 655.02% in the previous six months. At Thursday’s closing price, the stock’s net capitalization stands at $2.12 billion.

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