Verizon's $3.1B buyout of Straight Path 'a strategic positive,' Moody's says

Moody’s Investors Service approved Verizon’s $3.1 billion acquisition of Straight Path, calling it a “strategic positive” that will expand its 5G spectrum while blocking AT&T from adding to its portfolio of airwave licenses.

Straight Path said last week it had inked “a definitive merger agreement” that will see the nation’s top wireless service provider pay roughly $3.1 billion in an all-stock transaction, ending an aggressive bidding war with AT&T for the company’s airwaves. Verizon will also fork over a termination fee of $38 million to AT&T.

Straight Path holds an average of 620 MHz in the top 30 U.S. markets and covers the entire nation with 39 GHz spectrum, and it also holds 28 GHz spectrum licenses. AT&T last month agreed to buy Straight Path in a deal that valued the company at $1.6 billion—a significant markup over its trading price at the time—but Verizon quickly outbid AT&T, sparking the bidding war.

Verizon’s ultimate victory underscored the ever-increasing value of high-band spectrum for carriers looking to increase network capacity in advance of the rollout of 5G services.

“The transaction expands Verizon’s 5G spectrum holdings and gives the company certainty with its 5G architecture,” said Mark Stodden, senior vice president of Moody’s corporate finance group, in a prepared statement. “The Straight Path acquisition will give Verizon a vast 5G spectrum position compared to its peers … By losing Straight Path, AT&T missed an opportunity, but still has multiple options to pursue.”

Indeed, Reuters reported late Friday that Globalstar is working with financial advisors as it considers a potential sale of the company, according to unidentified sources. Globastar’s stock had risen nearly 21% so far this year through last Thursday, according to Reuters, and shot up an additional 30% Friday after rumors of a sale emerged.

Globalstar late last year received approval from the FCC to pursue a terrestrial wireless network using 11.5 megahertz of its satellite spectrum at 2483.5-2495 MHz. The unanimous FCC approval came about six weeks after Globalstar presented a revised plan that eliminated the most controversial parts of its earlier request, which included a proposal to use 10.5 megahertz in the unlicensed 2.4 GHz band. That led to objections over interference concerns and the implication that Globalstar would be afforded special rights.

Verizon surprised analysts earlier this year when it sat out of the FCC’s incentive auction of 600 MHz spectrum despite qualifying to bid in the event. But the nation’s largest carrier is clearly focused on higher-band airwaves as consumption of mobile data ramps up in the U.S.

“Verizon continues to assemble assets that support its core wireless business,” Stodden wrote. “In addition to the Straight Path transaction and XO acquisition, Verizon also reached fiber purchase agreements this year with Corning Incorporated and Prysmian Group to enhance its fiber network capacity, a key component of the proposed 5G architecture. Moody’s views these deals as strategic positives, but not matrial to near-term (0 to 3 years) financial performance. However, these small strategic asset purchases are essential to Verizon remaining competitive and perpetuating its market share.”