NII Holdings Inc. (NASDAQ:NIHD) has been beaten down to all-time lows recently. The analysts, institutions, and average investors have not been very positive as of late on the outlook for NIHD (link). Management stated on their May 12th 2014 conference call that the company had enough cash to make it to early 2015.
The telecom sector in the US has been very active the past two years with M&A. If history repeats itself in Latin America, then there is an attractive opportunity in NII Holdings. The last couple of years in the U.S. telecom market there have been countless firms teetering on the verge of possible bankruptcy. To name a few; Sprint / Nextel, Clearwire, and LEAP Wireless. All of these firms were bought out at a substantial premium especially for those that saw value prior to the announcements. Sprint / Nextel was scooped up by Japan's Softbank (OTCPK:SFTBY) after a bidding war with Dish Network (NASDAQ:DISH). Dish Network also participated in a bidding war for Clearwire against Sprint/Softbank. LEAP Wireless was an overnight surprise when AT&T (NYSE:T) offered $15 per share in cash as well as a CVR for spectrum LEAP has in the Chicago area. Friday evening AT&T announced their offer for LEAP increased more than 100%. It is fair to say the impetus for all of these acquisitions was mainly for spectrum. In Softbank's case the major reason to buy Sprint and Clearwire was to expand their geographical presence since the Japanese market is seeing limited growth and is very much a mature mobile market. Sprint had a longstanding relationship with Clearwire and held the largest amount of Clearwire shares, as well as owning a substantial amount of Clearwire debt. It seems that Clearwire was a major part of Softbank's plan for the entry into the U.S. mobile market, since they own large blocks of spectrum. AT&T's interest in LEAP Wireless was very simple, they needed the spectrum.
Now it looks like history could repeat in Latin America. NII Holdings has a large amount of debt, and it has been beaten lower repeatedly on mounting losses of revenue and subscribers. NII Holdings' current position is much like where Clearwire was a couple years back. NII Holdings operates in the major markets of Mexico and Brazil where it is a small player in both markets. So, who could be interested in this struggling wireless company?
Prospects for an acquisition have been getting very interesting. Before AT&T made an offer to buy DirecTV (DTV) I had hypothesized that if AT&T was to make a formal bid for DirecTV that they would have to divest all of their interest in America Movil (NYSE:AMX) since both the Mexican & Brazilian Telecom regulatory authorities would not approve of the transaction otherwise. In my opinion, AT&T would cut ties to America Movil, and use the proceeds from the sale to free up money for their DirecTV bid. I was correct. As part of the formal offer, AT&T said they would divest their stake in America Movil and remove their appointed board members. They will use proceeds from their position in AMX to leverage the purchase of DTV and open the door to additional M&A of anything they see in Latin America as a strategic asset that would complement DTV. I had made that prediction May 9th. Another person commented that AT&T would never sell their 8.4% stake in AMX since they have network agreements with Carlos Slim in the major mobile phone markets of Brazil and Mexico (link). My prediction was spot on when AT&T announced their formal offer for DirecTV on May 19th.
On May 1st Walter Piecyk of BTIG commented about the possible acquisition targets for DTV in Latin America. His short list included GVT, TIM, and NIHD (link). At the conclusion of the article he stated that DTV may be too afraid to make a major move in Brazil. On May 19th after the AT&T bid was formalized and also the divestiture of America Movil, DirecTV CEO Mike White stated "To have AT&T and their expertise, we'll be able to look at (mergers and acquisitions) opportunities differently," noting that he had previously avoided looking at some deals because he felt it wasn't a part of DirecTV's core business. Walter Piecyk tweeted on that comment that GVT, TIM, and NIHD were now all in play.
NII Holdings would not be difficult for AT&T or DirecTV to swallow up if they see it as a strategic asset. It is my opinion that NIHD is in their cross hairs since they have valuable spectrum, existing customers, and ready infrastructure in key markets for DirecTV in Latin America. This would allow them to offer triple play services. The mobile phone market with Brazil and Mexico combined is larger than the US market, and there is growth to be had. Since NII Holdings is a small player in both markets, there should be little regulatory roadblocks for a takeover. NII Holdings also has signed network sharing agreements with TEF this year to share networks in Brazil and Mexico (link), a partnership which AT&T would certainly see as having value after walking away from America Movil. There are many possibilities that could make NII Holdings a rather easy target for acquisition and the company is currently trading at a level where AT&T or DirecTV could pay a 200 to 300% premium to existing shareholders of NIHD, and still get the company on the cheap. NII Holdings' current debt load could easily be assumed by a giant like AT&T, and it only makes sense for AT&T and DirecTV to take a strong hard look at NII Holdings. It is a wonderful strategic asset for their business expansion in Latin America, and regulators in Brazil and Mexico would likely applaud a stronger player to compete against America Movil (link).
Disclosure: The author is long NIHD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
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