Kerrisdale Capital, the short selling firm that took on Globalstar a few years ago, is making another stab at taking down Straight Path Communications, issuing a new report declaring the company a “disgraced ‘5G’ hype vehicle.”
Last week, the FCC announced it had reached a $100 million settlement with Straight Path, ending an investigation into the company’s failure to deploy wireless services as required under FCC spectrum licensing rules, and Straight Path saw its shares rise more than 50% on the news.
As short sellers, Kerrisdale stands to gain if Straight Path’s stock price goes down; the firm also released a negative report about Straight Path in 2015. As of mid-day Eastern time Thursday, its shares were trading down about 10%, to $36.61.
Straight Path characterized Kerrisdale’s report as nothing more than “a transparent attempt by a short seller to recoup the money they lost last week after Straight Path Communications’ comprehensive settlement with the FCC. It is clear from FCC rulemaking and industry actions that this report has no credibility.”
“We are continuing to move forward as the largest holder of 39 GHz spectrum as well as a significant holder of 28 GHz in major markets,” Straight Path said in a press release. “We have cleared the way for a review of strategic alternatives to maximize shareholder value and have retained Evercore to represent us in our next endeavors.”
In their report, the Kerrisdale team spells out how they believe the market is overvaluing Straight Path’s portfolio, which includes some 28 GHz spectrum in major markets and about 95% of the total licenses commercially available for 39 GHz spectrum. In one scenario, they put the value of Straight Path’s spectrum at $260 million but add that a lot of other factors are at play that could make it far less valuable than that.
They also looked at other deals as a benchmark, namely Verizon’s deal to acquire assets of XO Holdings that was announced last February. In that transaction, Verizon acquired rights to two assets: the fiber-optic network business of XO Communications, bought for $1.8 billion, and the millimeter wave spectrum held by Nextlink, an XO Holdings subsidiary.
Arranged as a spectrum leasing deal through 2018, the transaction provides an option for Verizon to buy the spectrum, which Verizon is expected to do. Verizon didn’t disclose what it would actually pay for that XO spectrum in 2018, but Kerrisdale cites industry sources, including investment bank UBS, that indicate the strike price is $200 million.
During a conference call on Thursday, Sahm Adrangi, chief investment officer at Kerrisdale, and his team speculated about the parties most likely interested in Straight Path’s spectrum. Because Verizon already has access to 28 GHz and Sprint has a plethora of 2.5 GHz spectrum, they more or less rule them out and reason AT&T and T-Mobile might consider adding it to their portfolios. However, T-Mobile already owns some millimeter wave spectrum and AT&T could just wait until the FCC conducts an as-yet-unscheduled auction.
They also say a lot more millimeter wave spectrum will become available, further eroding the value of Straight Path’s spectrum. They also think the incoming Trump administration will be more likely to accelerate access to more spectrum—Republican commissioners during the Spectrum Frontiers proceeding expressed disappointment that more bands weren’t opened up faster—and the Trump administration will frown upon warehousing large chunks of spectrum as has been known to happen. Kerrisdale also issued a report on Dish Network last year.
Even though the FCC said it would fine Straight Path $100 million and require the company to surrender 196 of its licenses in the 39 GHz band, as well as sell the remainder of its spectrum portfolio in 12 months, Straight Path took last week’s settlement announcement as a good sign it could move forward. Investors took notice and its stock price shot up.
Adrangi told FierceWirelessTech that he and his team are not about trying to get companies like Straight Path to change the way they conduct their business, but they want to change the market’s perception of what they’re doing.
Straight Path, whose CEO Davidi Jonas has also taken on aerospace behemoth Boeing in some FCC filings in the Spectrum Frontiers proceeding, last week said the company’s spectrum is part of the bedrock for 5G and will play an important role in the development of the next-generation ecosystem, underscored by activities already underway by leading wireless carriers and equipment manufacturers in the U.S.