(Bloomberg) -- AT&T Inc. agreed to buy embattled spectrum-license holder Straight Path Communications Inc. in an all-stock deal valued at $1.6 billion as the phone giant seeks to take the lead in the 5G race.
Straight Path is one of the largest holders of 28 gigahertz and 39 GHz millimeter wave spectrum -- frequencies the U.S. Federal Communications Communications has already approved for fifth-generation, or 5G, use.
The Glen Allen, Virginia-based company had a big incentive to sell following a settlement earlier this year with the FCC. After finding the company had misrepresented the progress of putting its spectrum to use, the commission imposed a $15 million fine and ordered Straight Path to transfer its 28 GHz and 39 GHz spectrum licenses by January 2018 and pay 20 percent of the proceeds from the sales. If it doesn’t, the company would have to pay an additional $85 million or relinquish those airwaves back to the agency.
For AT&T, the deal marks the second acquisition of high-frequency airwaves this year. In January, AT&T purchased FiberTower Corp., which holds licenses for 24 GHz and 39 GHz bands of airwaves. The Dallas-based company is planning to build a 5G network using so-called millimeter-wave spectrum.
Faster connections and greater capacity will help wireless carriers like AT&T offer internet speeds competitive with cable-TV operators while relieving congestion created by consumers who demand Netflix video and live sports streamed directly to their phones. The carriers and gear-makers like Ericsson, Nokia Oyj, Qualcomm Inc. and Intel Corp. are projected to invest a collective $200 billion a year on 5G, according to IHS estimates.
Straight Path calls itself a leader in providing high-frequency airwaves for carrying traffic that will grow as the so-called Internet of things blossoms, linking everything from automobiles to garage doors and medical equipment. The company says its airwaves offer a cheaper alternative to the fiber lines that typically carry mobile traffic to and from the wired network.
Straight Path’s airwaves were originally purchased in 2001 from Winstar Communications Inc., a wireless service provider that went bust at the tail end of the internet and telecommunications bubble. The buyer, IDT Corp., spun off its spectrum holdings into the new company Straight Path a dozen years later.
AT&T will acquire Straight Path for $95.63 a share in an all-stock merger designed to be a tax-free reorganization, according to a statement Monday. That’s a 204 percent premium to Straight Path’s closing price of $31.41 on Jan. 11, the day before the company entered into a settlement with the FCC, and a 162 percent premium to its closing price of $36.48 Friday.
The total value of the deal includes liabilities and amounts owed to the FCC according to Straight Path’s settlement.
Howard Jonas, who has retained control of Straight Path, agreed to vote his Class A shares that are held through a trust in support of the transaction, according to the statement.
Evercore served as exclusive financial adviser to Straight Path. Weil, Gotshal & Manges LLP served as company counsel on the deal.