Smart bankruptcy attorneys say 85%-90% chance of a Nextwave win in Supreme Court. Nice investment opinion in this weekend's barrons.
Witmer: One last thing: There was a 13G [a regulatory filing denoting share ownership] filed by Gotham Partners, which is run by a very smart investor. My last pick is NextWave Telecom. The situation is very speculative.
Samberg: NextWave? Oh, God!
Q: Did you say something, Art?
Witmer: This is a very interesting story. You could double or triple your money, or lose it all. NextWave was formed to bid on the C-block licenses for cellular spectrum that were put up for bid in 1996. NextWave won the bidding for 63 licenses, costing $4.7 billion. In March of '97 it made a timely down-payment of $474 million, and signed a promissory note with the government for the balance. Then the company hired 600 people, opened 22 offices, secured $2 billion in vendor financing, signed 300 leases. It did everything it could do to get its business up and running. But after the C-Block auction, and before the granting of the C-block licenses, the FCC flooded the market with the D, E and F blocks of spectrum.
To make a long story not so long, NextWave had trouble meeting an interest payment due on its promissory note to the government because it couldn't raise any capital. It filed for bankruptcy protection, and has sort of muddled around in bankruptcy court. The court ruled against the lowering their payment. Then the value of the C-block licenses rebounded. When that happened NextWave secured financing to pay the government all the monies owed immediately. And it filed a plan of reorganization. On January 12, 2000, nine days before this plan was confirmed, the FCC claimed the licenses were canceled and put them up for re-auction. In the re-auction they fetched about $16 billion. Next Wave sued and won, the FCC appealed, NextWave won, and the FCC filed an appeal to the Supreme Court, which has not yet decided whether to take the case.
Q: This is a long story.
Witmer: While this was happening, Michael Powell, the new head of the FCC, started negotiating with Verizon and others that had bid on the spectrum to cut a deal giving the government something. They came up with a deal for the licenses in which NextWave would get $6 billion and the government would get $10 billion. The deal would value NextWave at about $13 to $15 a share, compared with about $7.50 right now. But the deal did not go through, because Senator Hollings (D.-S.C) essentially said, 'You didn't ask me.' [Thursday Verizon, the leading player in the settlement talks, withdrew form the negotiations.] If the Supreme Court does not take this case, or if they take it and rule against the FCC, NextWave will get the licenses for $4.74 billion. The government will get nothing. NextWave will have licenses worth $17 billion, bringing the value of its shares to about $25 or $30 apiece.
Q: The market doesn't think it's so open and shut.
Witmer: The smartest bankruptcy-law people I know think it is about an 85% to 90% chance that NextWave wins. To recap, if the Supreme Court rules against them, you get zero. If the deal gets re-cut and goes through Congress, you probably get your $12 or $13 a share. And if Next Wave wins, you get well north of $20 a share. The stock is about $7. |
