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Tower Power: Global Tower Partners Spotlights Options For NIHD

|Includes: AMT, CCI, NII Holdings, Inc. (NIHD), S, SBAC, T, T

This morning both the WSJ and Reuters reported that Global Tower Partners, owned by New York-based fund Macquarie Infrastructure Partners and Sydney-based Macquarie Communications Infrastructure Group is on the block and values for their 16,000 towers located in the US, Mexico and Costa Rico. Here is an excerpt from the WSJ:

Global Towers is hitting the block as Sprint Corp. S +1.31% and T-Mobile US Inc.,TMUS -2.59% the nation's third and fourth largest carriers, race to update their networks to the latest 4G LTE technology. Verizon Wireless says it has completed the bulk of its network upgrade and AT&T Mobility is close behind. The data boom has brought strong revenues to tower companies as the carriers expand coverage and need more cell sites, according to a Fidelity Investments research note.

Though Global Tower and its three larger, publicly traded rivals have made numerous deals in recent years to consolidate ownership of U.S. cell towers, it remains a somewhat fragmented sector.

The top-three companies-American Tower Corp., AMT -0.94% Crown Castle International Corp. CCI -1.09% and SBA Communications Corp. SBAC -1.02% -own roughly half of all U.S. wireless sites, according to RBC Capital Markets. More than 7,000 other operators own the rest.

With 8300 towers of its own primarily in Mexico and Brazil, NII Holdings (NASDAQ:NIHD) seems to be sitting in the "cat birds seat" with options for what it can do with them to unleash shareholder value. It can combine their towers with Global Towers and use their management team to run the resulting company which NIHD can quickly spin to its holders, possibly in a tax free, REIT vehicle. The resulting company would truly be "global" and would be a great addition to the larger players mentioned above. We think that applying a discount of 30% to the $250,000 average value per tower mentioned in the articles above would result in a $1.452 billion valuation ($8.49 per share) for NIHD towers alone. We do not think 1 penny of that value is reflected in NIHD shares today because NIHD's Mhz Pops value for their spectrum on a comparison to what LEAP Wireless was purchased for is 1/10th of US spectrum values, which we think is not realistic. Please see our calculation for this from our previous article and we summarize:

We have been writing about NII Holdings which is an NASDAQ traded U.S. based company with headquartered in Reston, VA as a spectrum rich wireless play which looks to be undervalued in the shadows of Friday's LEAP buyout proposal by T. As a comparison, NIHD at Friday's closing price equates to $.2138 per Mhz Pop for their 22.31 billion Mhz Pops in Lat Am licensed territories excluding Nextel Peru which is currently pending sale. Yes, the territories are vastly different in terms of demographics, but not an order of magnitude different especially when you take into consideration the higher growth potential in the emerging markets. We think a 70% discount is conservative, making NIHD a potential triple from Friday's close. In fact, Stifel has a $23 target price on NIHD, perhaps low Mhz Pop metric is the driver behind their aggressive price target. As an aside, here is a link to a letter filed at the FCC regarding Mhz Pop valuations related to the Clearwire Sprint transaction which is now old news.

Disclosure: I am long NIHD.