by Chris Nolter | Published August 3, 2012 at 7:23 AM
While AT&T Inc. lobbies the government to loosen rules on long-dormant wireless licenses, the carrier said Thursday that it will purchase a telecom that owns a swath of the unused spectrum and other licenses for $600 million.
AT&T has agreed to buy NextWave Wireless Inc., and struck a deal that would give the target's bondholders cash and equity in a newly created entity with some spectrum holdings.
The spectrum-hungry carrier would gain NextWave's licenses in the Wireless Communications Service and Advanced Wireless Service bands.
Meanwhile, the Dallas telecom has lined up more deals to purchase Wireless Communications, or WCS, spectrum. Filings with the Federal Communications Commission show that AT&T has agreed to buy licenses from Comcast Corp. and Horizon Wi-Com LLC.
AT&T would pay NextWave $25 million for its equity and could make a contingency payment of another $25 million.
The company also has a deal to take out NextWave's debt, which exceeds $1 billion in face value.
The company would pay NextWave debtholders $600 million, minus the merger compensation. If it makes the full contingency payment, the balance to the noteholders would be $550 million.
NextWave creditors would also receive equity in a new entity called NextWave Holdco that will own spectrum not included in the AT&T deal.
The WCS licenses have lain fallow since 1997 because of concerns about interference with satellite radio transmissions.
AT&T, which already holds some WCS licenses, and Sirius XM Radio Inc. have pressed the FCC to free up the spectrum.
In mid-June, AT&T and Sirius proposed marking some of the spectrum for wireless services while reserving other frequencies as a buffer zone that would protect satellite radio transmissions.
The Deal Pipeline reported in June that AT&T could look to roll up WCS holdings as its petition to the FCC moved forward. Other holders include Comcast, Sprint Nextel Corp. and Horizon Wi-Com.
Chris King of Stifel, Nicolaus & Co. and UBS Investment Bank analyst John Hodulik issued notes Thursday saying that AT&T had agreements with Comcast and Horizon Wi-Com. Hodulik estimated that AT&T would pay less than $1 billion for the three purchases.
For much of its existence, NextWave has been a wireless spectrum holding company.
Formed in the 1990s to purchase spectrum licenses, the telecom battled with the government over ownership of its spectrum licenses. NextWave spent 1998 to 2005 in bankruptcy protection as the litigation dragged on. The Supreme Court ruled in NextWave's favor in 2003.
Following the decision, NextWave sold billions of dollars worth of spectrum to Cingular Wireless (now AT&T), Verizon Wireless and MetroPCS Communications Inc.
After the bankruptcy the company experimented with various businesses.
NextWave has spent much of the past two years marketing its wireless licenses and negotiating with noteholders.
Jennifer Fritzsche of Wells Fargo Securities LLC estimated in a Thursday report that the sale to AT&T values NextWave's licenses at 16 cents to 17 cents per megahertz per person covered. She noted that much of the WCS spectrum included in the deal would fall into the satellite radio buffer swath proposed by AT&T and Sirius. "Therefore," she wrote, "this spectrum would not be considered usable."
The deal will not resolve AT&T's wireless capacity needs.
"Our sense is AT&T will still have interest in other spectrum," King wrote Thursday.
The trove of wireless licenses recently acquired by Charlie Ergen's satellite TV company Dish Network Corp. could be of interest. However, King suggested, "AT&T may be a little less desperate over the long haul, giving it more negotiating leverage."
AT&T retained Sullivan & Cromwell LLP lawyers including Eric Krautheimer and Andrew Dietderich.
Moelis & Co. bankers Stan Holtz, Mark Hootnick, Matt A'Hearn and Ryan Cech advised an independent committee of NextWave board members.
Lowenstein Sandler PC lawyers Marita Makinen, Michael Reinhardt and Lowell Citron led a team that provided counsel to NextWave.
AT&T expects to close the NextWave transaction by year's end.
Stacey R. Friedman, general counsel of JPMorgan Chase & Co.'s corporate and investment bank, will succeed Steve Cutler as general counsel of the firm early next year. For other updates launch today's Movers & shakers slideshow.