AT&T Bets Big on 5G Spectrum with $1.6 Billion Purchase of Straight Path Communications

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Telecommunications giant AT&T Inc. (NYSE:T) is set to expand its 5G spectrum holdings after agreeing to acquire Straight Path Communications Inc. (NYSE:STRP) in an all-stock deal valued at $1.6 billion.

Straight Path owns a portfolio of 28 GHz and 39 GHz wireless spectrum licenses and is developing next generation wireless technology via its Straight Path Ventures unit.

Under the terms, shareholders of Straight Path will receive $1.25 billion, or $95.63 per share, which will be settled using AT&T stock, according to an April 10 press release.

The transaction, which was approved by the boards of both companies, also covers liabilities and certain amounts owed to the Federal Communications Commission under Straight Path’s consent decree in January. It is expected to close within 12 months, subject to FCC review.

5G Leader

The acquisition complements AT&T’s planned acquisition of FiberTower and its mmWave spectrum rights.

It is also expected to boost the company’s bid to become a leader in 5G, which in turn will speed up the delivery of new experiences for consumers and businesses, including autonomous cars, augmented reality, telemedicine, smart cities and more.

According to the statement, AT&T will buy 133 licenses in the 28 GHz band and 735 mmWave licenses in the 39 GHz band, which cover the entire U.S., including all of the top 40 markets.

Maximizing Shareholder Value

In a separate same-day press release, Straight Path noted that the transaction concludes its previously announced strategic alternatives process and maximizes shareholder value.

The acquisition translates to a 204% premium to the closing price of Straight Path shares of $31.41 on January 11, and a 162% premium to the closing price of $36.48 on April 7.

Howard Jonas, Straight Path’s majority shareholder, supports the agreement.

“The merger of AT&T and Straight Path Communications marks a vital point for us. Importantly, this merger provides Straight Path shareholders with a compelling return since Straight Path’s spin-off to become an independent public company in 2013, with an initial price per share of $6.40 on July 31, 2013,” Straight Path CEO Davidi Jonas said in the statement.

Financial Results

Straight Path reported an attributable net loss of $25.4 million in the second quarter of its fiscal 2017, widening from a loss of $2.0 million recorded in the year-earlier period.

Revenues, however, slightly increased to $200,000 from $100,000 a year ago.

The company also secured a $17.5 million loan from a syndicate of investors in February. The majority of proceeds will be used to pay the FCC while the remainder will be used for general operations.

Key Stakeholders

Solus Alternative Asset Management LP is the largest shareholder of Straight Path, holding 1.1 million shares valued at $37.4 million as of the end of December 2016.

Another key stakeholder is Archer Capital Management LP, which owned 616,044 shares in the company valued at $20.9 million as of the end of the same period.

AT&T shares closed at $40.38, down by 0.52%, while Straight Path shares surged by over 151% to close at $91.64.

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