It has been nearly five months since NextWave Telecom Inc., parent company of NextWave Personal Communications and NextWave Power Partners, submitted its S-1 filing with the Securities and Exchange Commission for its initial public offering. The company, which paid a remarkable $4.2 billion for 56 C-block licenses in addition to claiming a few others in the C-block re-auction, wants to sell $400 million worth of senior discount notes plus $300 million worth of Series B common stock as soon as possible. So far, the IPO has gone nowhere.
NextWave’s original senior underwriter, Merrill Lynch & Co., backed out of the IPO contract several weeks ago and was replaced by Smith Barney Inc. A source close to the situation told RCR that Merrill Lynch had advised NextWave that market conditions were changing, and this was not the best time to move forward with any risky financial moves. NextWave, however, disagreed, so Merrill Lynch waived its fees and terminated the contract.
NextWave and Smith Barney would not comment on the situation, claiming “quiet period” restrictions.
Prior to its IPO plans, Next-Wave had engaged in several private placements of stock that each garnered anywhere from $13.9 million to $254 million, for a total of $450 million. It also has a number of loan agreements that are being scrutinized by the Federal Communications Commission to ascertain whether they really qualify as equity investments.
Market conditions may not be the only thorn in Next-Wave’s financial side. Some Wall Street insiders have pointed to NextWave’s lack of a sound business plan, its obligation to pay the costs of markets that may have been overvalued, the problems inherent with committing to a relatively untested technology-Code Division Multiple Access-and the stigma of the ongoing petitions to deny currently being analyzed by the FCC, as other reasons the investment community has not been willing to market NextWave’s notes and shares. Potential shareholders may be hesitant to buy shares in a company that could disappear if the FCC decides not to grant its licenses.
The $400 million the IPO could raise is only a fraction of what NextWave needs to build its initial properties. The first markets set to operate-New York City, Los Angeles/San Diego, Washington, D.C./Baltimore, Boston and Houston-will eat up $400 million quickly, even if NextWave throws in vendor financing (which it does not have) and cash on hand. In fact, NextWave believes it will take $1.5 billion to engineer and construct those five markets.
And then there is the question of paying off its FCC debt. According to the IPO, which is expected to be amended soon at the SEC to list the new underwriter, the company projects payments to the FCC of $950 million per year, paid on a quarterly basis, for 10 years, just for the pieces of paper.
One wireless executive commented that because Next-Wave has so far to go and so many systems to construct in a competitive market, investors are chary to hand over money for shares that may never increase in value.
