NII Holdings Tower Deal: Good Job, Now Spin-Off The Rest

| About: NII Holdings, (NIHD)
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This morning, NII Holdings (NASDAQ:NIHD) made good on their promise to deliver a sale leaseback deal on 4456 cell phone towers with American Tower (NYSE:AMT). Here is an excerpt from the release:

"... Nextel brand in Latin America, today announced it has agreed to sell approximately 2,790 towers in Braziland 1,666 towers in Mexico to American Tower Corporation (AMT) [NYSE: AMT] in two separate transactions for total estimated proceeds based on current foreign currency exchange rates of $413 million and $398 million, respectively,..."

This provides NIHD with roughly $4.74 per share in additional liquidity and a very handsome cash cushion to complete its network upgrade and return to positive cash flow.

According to management, they owned 8500 towers total before this transaction. This leaves the company with 4044 towers scattered throughout Latin America. If we look at the average price paid for the tower deal announced today, we get an average price per tower of $182,000. If we discount the value of the remaining towers by 25% to $136,000, the total value of the remaining towers would be ~ $550 million. Dividing this value by 171 million shares outstanding gives us another $3.21 per share in value. Moreover, we think NIHD can easily spin the remaining towers off to shareholder as we proposed before for the entire portfolio. After the AMT deal announced today, NIHD could spin these off without requiring the new company to raise any cash to accomplish the spinoff. We hope this is a transaction that is being considered by management.

As we have reported before, NIHD has a substantial short position outstanding in its shares. Roughly 60 million shares are short as of July 15th, and we think that number has grown as will be reported tonight after the close of trading. With today's price action in the stock going from positive in the pre market to flat on the day as we write this article, we can only surmise that the shorts are increasing their bets in this name. One sure-fire way of getting them out is to do a spinoff to shareholders as they will have to pay that value to shareholder from whom they have borrowed their stock to sell short.

In February, we published an article which gave a bare bones valuation for NIHD of $9.69 per share, and we did not include the additional towers that have not been sold. Adding that $3.21 and the additional $.60 per share from the sale of Nextel Peru above our original estimate brings our new total to a floor valuation of $13.50 for NIHD.

Some excerpts from our previous valuation article:

#1.Cell Tower Business- ...value for the 4500 cell towers in Brazil and Mexico at $822 million. ... We therefore stick with our $822 estimate for this asset.

#2.Nextel Peru- We see this as a completely new data-point since our previous article and put this into our territory sale projection at the low end estimate of $300 million. Adding this to #1 brings the Subtotal of asset sales to $1.122 billion.

#3.Nextel Chile- We will use the same value per subscriber as Credit Suisse used in Peru for the 153,000 Chile customers reported in the last10Q. This yields another $30.6 million which is very low given the spectrum and capital equipment already deployed. ... Subtotal of asset sales to $1.1526 billion.

#4.Nextel Argentina- Taking the 1.692 million subscribers in Argentina and using the same price per sub from above yields $338.4 million. The Subtotal of this plus Subtotal in #3 comes to $1.491.

#5.Nextel Mexico- Because we have a benchmark for potential market value from the announced but uncompleted Televisa transaction, we propose a conservative 50% discount from the total value proposed at that time and announced in the NIHD PRNewswire release as follows:

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.

The 50% discount yields $2.15 billion for Nextel Mexico. Adding this to Subtotal in #4 brings total asset sales comes to $3.641 billion.... leaves us with $1.6624 billion in total value for NIHD. Dividing this total by 171.5 million shares outstanding results in a conservative net per share value of $9.69.

In addition, we have done a spectrum valuation based on the recent Leap Wireless (LEAP) acquisition announced by AT&T (NYSE:T) in our recent article here on SA that shows the Mhz Pop valuation of NIHD at a 90% discount to LEAP based on that sale price.


With mobile computing transforming how consumers and enterprise live and operate, we think looking for a bargain in this space is wise as a long term investment strategy. We see Carlos Slim's America Movil (NYSE:AMX) announcing it wants to but the rest of Koninklijke KPN NV (OTCPK:KKPNF) that it does not already own. Certainly he has a belief in the long term value in wireless operators, and we do too.

Disclosure: I am long NIHD. 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.