https://www.ft.com/content/46552f60-3665-11e7-bce4-9023f8c0fd2e
Verizonspectrum: Straight and narrow Premium Hedge fund had argued US group’s target Straight Path was ‘dramatically overvalued’ Lex Read next Fast FT Verizon wins bidding war to buy Straight Path for $3.1bn © Bloomberg Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window)
What could be sweeter for a chief executive than crushing a short seller who had the temerity to say your company was “dramatically overvalued”?
On Thursday, a heated auction for US telecom company, Straight Path Communications resulted in the company being sold to Verizon at a 486 per cent premium. The short seller may still have a point, though. Sample the FT’s top stories for a week You select the topic, we deliver the news. Select topic Enter email addressInvalid email Sign up By signing up you confirm that you have read and agree to the terms and conditions, cookie policy and privacy policy. Prior to the auction, AT&T thought it had won over Straight Path with a $96-per-share offer last month. Instead, Straight Path went to Verizon for $184 per share (implying an enterprise value of $3bn) and a huge premium over the undisturbed price. Straight Path is less a business and more a repository of suddenly interesting wireless spectrum. Before the bidding frenzy, hedge fund Kerrisdale Capital shorted the stock and argued that Straight Path’s price was wildly inflated.
That thesis may be vindicated but the intellectual victory will offer little comfort to Kerrisdale’s own investors. There is a bitter irony to Verizon’s skewering of Kerrisdale. The fund’s view on Straight Path was based, oddly enough, on another recent Verizon acquisition. The latter had acquired spectrum similar to Straight Path’s from Carl Icahn’s XO Communications for roughly $200m in February 2016. By Kerrisdale’s calculation, the multiple implied by the XO purchase suggested Straight Path was overvalued by 70 per cent. Kerrisdale believes that the next generation of mobile communications — 5G — will flop.
It referred to Straight Path as a “disgraced 5G hype vehicle”, alluding to a legal dust-up with regulators. Verizon’s shopping spree has raised eyebrows. Throwing big money at digital media, telematics, fibre networks, and now obscure spectrum while its core mobile phone unit erodes suggests strategic confusion and tactical desperation. Indeed, its new concentration in spectrum may cause the telecom regulator to force Verizon into divestitures.
Just when, and on what terms, the Verizon buyout closes remains to be seen. At some point, Kerrisdale’s wounds will heal. For its next target, it may well consider Straight Path’s acquirer as a juicy choice. Email the Lex team at lex@ft.com
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