Turnaround Letter Buy-rated NII Holdings (Nasdaq: NIHD) announced an agreement to sell its 70% stake in Brazil Nextel assets to América Móvil. These assets are NII’s only remaining operating assets, so the company will be dissolved after the transaction is completed.
The deal is valued at $905 million. From this, Nextel Brazil’s holding company debt net of cash, as well as other adjustments, are subtracted, leaving an equity value of about $421 million. As NII Holdings owns 70%, its proceeds will be about $290 million. Of these proceeds, $30 million will be escrowed for 18 months to allow for contingencies. NII Holdings’ net debt of a little over $106 million will be repaid from these proceeds, leaving about $188 million, or $1.77/share, in cash to be distributed to shareholders.
The other asset that will produce distributions to NIHD shareholders is the $106 million in cash held in escrow in Mexico related to a prior sale. When the escrowed cash is released, NII receives 94% after the first $10 million (which goes to AI Brazil, who owns the other 30% of Nextel Brazil). NII estimates that it will receive about $75 million of this cash, or about $0.71/share. These proceeds are not a certainty, and most likely could take as much as 18 months to be received.
Combined, the $1.77/share plus the $0.71/share in distributions produce a total potential cash distribution to NIHD shareholders of about $2.48/share. The company estimates that the initial payout will be $1.00 to $1.50 per share paid around mid-year, with the balance paid as it is released from the escrow accounts and as NIHD is dissolved. We estimate that the final payout could be as far as two years away.
The sale price is disappointing. We had anticipated a price well-above $10/share, particularly with the strong interest from Telecom Italia in November 2018 when they made a non-binding offer for NII Holdings. However, this bidder went away.
Given the low price and the low $25 million break-up fee, there is a possibility that shareholders will vote against the sale at the May/June shareholder vote, or that another buyer emerges with a superior bid.
As the current deal is an all-cash offer from a highly credible buyer, we think there is good merit to waiting rather than selling now.
We are moving shares of NII Holdings (NIHD) to a HOLD.
Disclosure Note: Accounts managed by an affiliate of the Publisher and an employee of the Publisher own NIHD shares.