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Yesterday, NII Holdings (NASDAQ:NIHD) announced pricing for an expanded note offering. The deal, lead by JPMorgan (NYSE:JPM), was originally sized as a $400 million issue, but due to increased demand, it was expanded to $750 million. We think this development is important on 2 fronts. First, it is an insurance policy for the NIHD in terms of flexibility to execute its plan to streamline operations and enhance shareholder value. Secondly, it shows confidence from debt holders in the new leadership team.

We like to focus on "alpha rich" opportunities that are turnaround stories such as BlackBerry (NASDAQ:BBRY) which we have written a number of articles outlining why it will increase in value through increased sales and its sound new QNX operating system. In this article, we go to the other end of the cell phone business: the mobile telephony operator.

For sure, NII Holdings has become under-loved as a stock as the chart below illustrates:
(Click to enlarge)

NIHD is a Latin American cell phone operator using push to talk {PTT - walkie-talkie style} technology with operations in Mexico, Peru, Chile and last but not least Brazil. The territories break down as follows :

Nextel Chile

Employees: 1,003

Licensed Pops: 17 million

Covered Pops: 10 million

% GDP covered: 80%

Nextel Mexico

Employees: 5,245

Licensed Pops: 108 million

Covered Pops: 70 million

% GDP covered: 82%

Nextel Peru

Employees: 1,478

Licensed Pops: 20 million

Covered Pops: 17 million

% GDP covered: 82%

Nextel Argentina

Employees: 1,547

Licensed Pops: 21 million

Covered Pops: 21 million

% GDP covered: 87%

Nextel Brazil

Employees: 6,487

Licensed Pops: 176 million

Covered Pops: 86 million

% GDP covered: 67%

NIHD is based out of the US.

NII Holdings Reston, VA

Headquarters Employees: 330

Employees: 16,089

We pick up the action in 2008 when current Interim CEO Shindler moved to become Chairman of NIHD and Steven Dussek became CEO. The company went into a hyper growth phase with its eyes set on building out a 3G PTT network in all of its markets and expanding its footprint in Brazil. They successfully raised hundreds of millions in various flavors of debt to build out their networks and bid for the expansion in Brazil.

In December 2010, NIHD announces "that its subsidiary, Nextel Brazil, was the winning bidder for 20 MHz licenses in the 1.9-2.1GHz frequency band (H band) auctioned by Brazil's National Telecommunications Agency (Anatel). Nextel Brazil was the successful bidder for 11 of the 13 lots included in the H Band auction. The regional licenses won by Nextel Brazil cover approximately 182.4 million people in the country, or 97% of the Brazilian population, and 97% of the areas that generate the GDP in Brazil. These licenses cover all major metropolitan areas in Brazil including Sao Paulo, Rio de Janeiro and Brasilia."

Here are excerpts from selected NIHD press releases describing key strategic and financing transactions starting in late 2009:

RESTON, VA - December 9, 2009 - NII Holdings, Inc. today announced the pricing of the offering, through its wholly owned subsidiary NII Capital Corp., of $500 million principal amount of 87/8% Senior Notes due 2019.

RESTON, Va., Aug. 13 /PRNewswire-FirstCall/ -- NII Holdings, Inc. today announced the pricing of the offering, through its wholly owned subsidiary NII Capital Corp., of $800 million principal amount of 10% Senior Notes due 2016. The issue price is 97.568% of the principal amount of the notes.

RESTON, Va. and MEXICO CITY, Feb 15, 2010 /PRNewswire via COMTEX/ -- NII Holdings, Inc. and Grupo Televisa, S.A.B. (BMV:TLEVISA CPO; NYSE: TV) today announced that they have signed a definitive agreement under which Televisa will acquire an equity stake in NII Holding's operating subsidiary in Mexico, Comunicaciones Nextel de Mexico, S.A. de C.V. Under the agreement, Televisa will invest $1.44 billion in cash for an initial 30% equity stake in Nextel Mexico, which reflects an implied pre-investment value of Nextel Mexico of $4.3 billion. Televisa will also be granted an option to acquire an additional 7.5% equity interest in Nextel Mexico that will be exercisable on either the 3rd or 4th anniversary of the completion of the initial investment.

RESTON, Va. - August 3, 2010 - NII Holdings, Inc. (NASDAQ: ) (the "Company") announced today that it has decided to exercise its right to redeem its 2.75% Convertible Notes due 2025 (the "Notes") issued pursuant to an indenture between the Company and Wilmington Trust Company, as Trustee, dated August 15, 2005 ...

RESTON, Va. and MEXICO CITY, Oct 18, 2010 /PRNewswire via COMTEX/ --NII Holdings, Inc. and Grupo Televisa, S.A.B. ("Televisa", BMV:TLEVISA CPO; NYSE: TV) today announced that they have mutually agreed to terminate the previously announced Investment and Securities Subscription Agreement dated as of February 15, 2010, pursuant to which Grupo Televisa would have acquired an equity stake in Nextel Mexico.

RESTON, Va., July 27, 2011 /PRNewswire via COMTEX/ --NII Holdings, Inc. [NASDAQ: NIHD], announced today that its operating subsidiary, Nextel Mexico, and China Development Bank (CDB) have signed an agreement that provides for Nextel Mexico to receive a $375 million loan from CDB to acquire 3G network infrastructure from Huawei Technologies Co. Ltd., a global provider of next generation telecommunications network solutions.

RESTON, Va., Dec. 5, 2011 /PRNewswire/ -- NII Holdings, Inc. [NASDAQ: NIHD] today announced the pricing of the offering, through its wholly owned subsidiary NII Capital Corp., of $700 million principal amount of 7.625% Senior Notes due 2021. The issue price to the public is 98.5% of the principal amount of the notes.

RESTON, Va., Sept. 26, 2012 /PRNewswire/ -- NII Holdings, Inc. [NASDAQ: NIHD], a provider of differentiated mobile communications services under the Nextel brand in Latin America, announced today that its operating subsidiary, Nextel Mexico, has launched its next generation network in Mexico. The new network provides a robust technological platform that offers a full array of wireless products and services, including a differentiated Push-to-Talk (PTT) service and high-speed data capabilities, incorporated into Android-based smartphones.

RESTON, Va., Nov. 6, 2012 /PRNewswire/ -- NII Holdings, Inc. [NASDAQ: NIHD] a provider of differentiated mobile communications services operating under the Nextel brand in Latin America, today announced that it is taking actions to realign certain resources and roles between its headquarters and market units in order to create a stronger and more agile organization, and to facilitate future growth.

RESTON, Va., Dec. 13, 2012 /PRNewswire/ -- NII Holdings, Inc. , a provider of differentiated mobile communications services operating under the Nextel brand in Latin America, announced today that its Board of Directors has appointed Steven M. Shindler, currently Chairman of the Board, to the additional position of interim Chief Executive Officer, effective immediately.

RESTON, Va., Feb. 11, 2013 /PRNewswire/ -- NII Holdings, Inc. today announced the pricing of the offering, through its wholly owned subsidiary NII International Telecom S.C.A., of $750 million principal amount of 11 3/8% Senior Notes due 2019. The issue price is 100% of the principal amount of the notes. The size of the offering was increased from the previously announced $400 million to $750 million.

We needed to give these snippets from the last three years of activity to paint the picture of a company biting off more than it can chew. Clearly, the announcement of bringing back Shindler is to clean up the mess that previous management created. Operating a company headquartered in Reston Virgina that operates subsidiaries throughout Latin America is a daunting task.

In Mexico, the broken deal with Televisa was simply because of a long running feud between Televisa's controlling family, Azcarraga and the richest man in the world, Carlos Slim who is the chairman and chief executive of telecommunications companies Telmex and América Móvil.

But, given the confidence of new management at NIHD during the most recent debt offering road show, which priced today, it seems that interim CEO Shindler has established the path back to focus and execution of the company's business plan.

Attendees of the NIHD road show outlined some important facts that provide a meaningful strategy to get the company's cash flow to a point that can support its large debt balance. With $4.4 billion in structured debt before yesterday's additional $750 million, the company needs to trim down its operations to pay down debt ahead of schedule in order to regain the tremendous loss in shareholder value. Here are some of the points made during the presentations:

New management is focused on the build-out of 3G in Mexico and Brazil. Company is looking to sell off its 4500 cell tower business in a formal process with a possible deal announced in Q2. Company is looking to partner or JV Pacific operations {Chile Peru Argentina}. Any proceeds will be used to accelerate debt repayment. A combination of these non operating activities in addition to the successful placement of the Senior Notes offering just announced will enable the company to accelerate cash flow through subscriber ramp up in the key Brazilian and Mexican markets.

Below is an excerpt from their most recent balance sheet from their 9/31/12 SEC 10Q filing:


(Click to enlarge)

Taking the current assets of $3.422 billion and subtracting it from the $6.413 total liabilities leaves us with approximately $3 billion in debt remaining as net debt. This is very conservative because we are not giving any weighting to the $3.888 billion in long-term assets which would bring some value in a fire sale situation. Let us use the $3 billion as the target to see what remaining value is there when we add the values of the pieces of NIHD. We have not taken into consideration the latest offering which adds substantial cushion to insure for operational risk, and the dollars offset pretty well, dollar for dollar in assets vs. liabilities except for offering costs.

To put an approximate value on the 4500 towers in Mexico and Brazil, we took a look at a recent announced deal by American Tower Corporation (NYSE:AMT):

Announced 11/15/12

393.00M for E-Plus Mobilfunk GmbH & Co. KG, Over 2000 Tower Sites in Germany

Merger/Acquisition

American Tower Corporation signed a definitive agreement to acquire over 2000 tower sites in Germany from E-Plus Mobilfunk GmbH & Co. KG for approximately €390 million on November 15, 2012. The transaction does not include transmitting stations installed on the towers.

Using the current 1.34 dollar/euro exchange rate, the above deal translates to $522 million for 2000 towers in Germany. Let us discount that for the Latin American market by 30% to come up with a ballpark value for the NIHD tower business. This gives us $822 million as the value for the towers. We subtract from $3 billion and we are now down to $2.178 billion in debt.

An excerpt from a report from July 2012 from Macquarie Capital shows NIHD's Spectrum holdings only in Brazil could be worth $21 per share:


(Click to enlarge)

With 171.5 million shares outstanding, that equates to $3.6 billion. Subtracting our remaining debt of $2.178 leaves us with $1.422 billion in value without placing any value for the Mexico, Argentina, Chile or Peru operations and their associated infrastructure represented in NIHD's long-term asset balance sheet items. Dividing $1.422 by 171.5 million shares outstanding gives a bare bones value for the company today of $8.29 per share which is well above yesterday's closing price of $6.08.

In addition, there is a very large short interest in NIHD. The most recent Nasdaq report shows an outstanding short interest of 58,914,972. That is close to 1/3 the outstanding shares issued and outstanding. This could be a further catalyst in boosting share price, should Shindler implement his turnaround plan.

In our view, the shares in NIHD have been heavily punished by investors for poor operating and infrastructure build-out execution. The reappointment of CEO Shindler from semi-retirement back to implement a serious plan to focus the company on value creation is a bullish development. This quote from the PRNewswire release "Televisa will invest $1.44 billion in cash for an initial 30% equity stake in Nextel Mexico, which reflects an implied pre-investment value of Nextel Mexico of $4.3 billion." speaks volumes on where shares may reach with the proper execution of NIHD's comeback plan.

Disclosure: I am long NIHD, BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: NII Holdings Prices $750 Million Notes: New Cash Plus Shindler Lead To Probable Shares Boost