New 10% Owner/Institutional Investor Buying First Avenue Networks Stock (FRNS)

From Insider Score: In the wake of First Avenue Networks' (FRNS) announcement of a $1.5B merger, one of the wireless outfit's largest shareholders has increased its stake. TCS Capital Management, a New York-based hedge fund with about $2B in equity assets, bought 362.7K shares of FRNS at $13.25 to $14.23 on May 19th, upping its stake in the company to a little more than 8M shares, or just under a 13% stake.

TCS disclosed the purchase via a Form 4 filing; however, the firm was buying shares of FRNS some time between April 1st and May 18th, as on May 15th it disclosed just a 4.13M-share stake in FRNS in a Form 13F-HR filing for the period ended March 31st.

Before the bell on May 15th, FRNS announced that it had entered into a definitive merger agreement with privately held FiberTower Corporation. Under the terms of the all-stock deal, FRNS will issue approximately 73.7M shares of its common stock to FiberTower shareholders, resulting in the latter owning 51% of the combined company. According to the companies, the deal is valued at approximately $1.5B. The combined entity will take the name FiberTower Corporation and be led by Michael Gallagher, the current CEO of FRNS. FiberTower shareholders will control the board with a 5-to-4 advantage, and the deal is scheduled to close by the end of the third quarter.

McLean, Virginia-based FRNS delivers wireless transport services to cellular carriers, service providers, and government suppliers and agencies. The company's main asset is a large swath of robust 24 GHz and 39 GHz wireless spectrum that covers 99% of the United States. FRNS, however, has had difficulty monetizing its spectrum, churning out revenues of just $1.3M and a net loss of -$11.3M in 2005. Nonetheless, since the company acquired the remnants (spectrum basically) of telecom flameout Teligent for $99M in July 2004, FRNS has embarked on a plan to "operationalize" its assets, turning from a licensor into a wireless backhaul provider.

On the other side of the country, San Francisco-based FiberTower has been busy racking up $225M in financing from names like Crown Castle International (CCI), American Tower Corporation (AMT), SpectraSite Communications (SSI), Oak Investment Partners, Tudor Investment Corp., and Goldman, Sachs & Co. (GS). The wireless backhauler has, of course, never disclosed its financials, but on a conference call to discuss the FRNS deal, company representatives said that FiberTower serves five "major wireless carriers" and has over "1,000 sites live in 12 markets."

"We'll probably be in the capital markets some 12 or 18 months from now looking to raise more capital as we figure out what our growth plans [are], but there are no immediate plans to do that right now," Gallagher told analysts on a conference call to discuss the merger.

"On the other side of the ledger, we are in 12 markets that we're live right now with contracts with five of the largest carriers. The plan is two-fold," Gallagher continued. " One, we absolutely plan to go deeper in every one of those markets and make sure that we get as many carriers and take advantage of the collocation architecture that's out there. [The] second part of that is to go deeper in those markets with the technology and the spectrum that's available meaning that we go deeper in the major metro areas. In terms of expansion into other markets, it is premature right now to lay out how many other markets we'll take out in '06 and '07."

Shares of FRNS jumped almost 40% on the FiberTower announcement, climbing from $9.66 to $13.51, and almost tripling off their June 2005, 52-week low of $4.60. The stock subsequently rose as high as $15.90 on May 19th, its highest price since the company exited from bankruptcy in 2001 and got its shares relisted a year later.

Turning to TCS, the firm is run by Eric Semler, a journalist (New York Times and Moscow News) turned investment analyst and banker (Georgica Advisors, Wolfensohn, and Montgomery Securities). Semler tends to stick with his strengths, focusing on media, 'Net, and telecom related investments. As of the end of Q1, TCS held 5% or greater stakes in NetRatings (NTRT), Broadwing (BWNG), Homestore (MOVE), Dobson Communications (DCEL), and Central European Media Enterprises (CETV), among others. Despite those holdings, TCS' portfolio was most heavily weighted towards Google (GOOG), the aforementioned AMT, and Focus Media Holding (FMCN), with each investment comprising 6% to 7% of TCS' portfolio. Based on the number of shares FRNS is issuing to FiberTower shareholders, TCS will own a 5.9% stake in the combined company.

Worth Noting: Excluding TCS, FRNS' largest shareholders on a pre-merger basis are: Aspen Advisors (34.2%), Georgica Advisors (13.9%), Ramius Capital (8.2%), Peninsula Capital Advisors (8.1%), and Quaker Capital Management (7.6%). Aspen, however, filed a Form 13 this week indicating that it now holds a 23% stake in FRNS, while Peninsula exercised options on 1.7M shares on May 11th, upping its stake in FRNS to 10.6%.

Aspen had not filed an updated Form 13 in quite some time, so it doesn't appear that the firm has sold FRNS shares recently. Peninsula, meanwhile, also entered into a lock-up agreement, saying it would not sell any FRNS shares for either a year after the closing of the FiberTower deal, or until the company closes a debt or equity financing deal that nets it at least $100M. Aspen and Peninsula, as well as Quaker, have signed off on the merger.

Meanwhile, one person who missed out on some upside from the deal announcement was Sandra Thomas, the former CFO of FRNS. Thomas sold 128K shares of FRNS at an average price of $12.47 on May 17th. No need to cry for Thomas though, as she acquired her shares through recent option exercises, with 98K shares at a cost basis of just 33 cents per share. Interestingly, her ex-husband scored about 25K shares through a divorce settlement.

Other public companies holding yet-to-be-monetized baskets of spectrum include Carl Icahn-backed XO Holdings (XOHO.OB) and cash-rich IDT Corp. (IDT).