By Thomas Gryta and Drew FitzGerald
Howard Jonas has struck gold. Again.
The businessman and telecom speculator has agreed to sell one of
his companies, a long-struggling wireless venture, to Verizon
Communications Inc. for $3.1 billion. The deal's price nearly
doubled in recent weeks after a bidding war broke out between
Verizon and AT&T Inc.
It is a big premium for an obscure company called Straight Path
Communications Inc. that has just nine employees and has yet to
build out a network. And it is another windfall for Mr. Jonas, who
made a splash in 2000 by selling a stake in internet-calling
company Net2Phone for more than $1.1 billion in cash to
AT&T.
"We don't sell things unless someone comes along and gives us an
outrageously good price," Mr. Jonas said in an interview Wednesday.
He spun off Straight Path in 2013 and owns more than 70% of its
voting shares through a trust, according to a securities
filing.
The 60-year-old cut his teeth selling hot dogs in the Bronx,
N.Y., at the age of 14, studied economics at Harvard and eventually
moved into the phone business with the founding of long-distance
provider IDT Corp. in 1990. He used the windfall from his Net2Phone
deal to fund an array of ventures including looking for shale oil
in Mongolia, publishing "Star Trek" comic books and trying to cure
cancer.
One of these forays led to the creation of Straight Path. IDT
bought a swath of U.S. airwave licenses and other assets for $56
million in 2001 and 2002 from Winstar Communications Inc., which
had filed for bankruptcy protection. At the time, Mr. Jonas praised
the deal: "It might not top the Dutch settlers buying the Island of
Manhattan for twenty four dollars, but it comes pretty close."
The thinking was the Winstar assets would allow IDT to expand
its telecom offerings to customers, but the business didn't develop
as expected and led to losses that eventually piled up to $300
million, Mr. Jonas said.
"If you asked me two years ago what was the worst mistake I made
in business, I would have said Straight Path," he said this
week.
The business was spun off in 2013 with a handful of employees
and Mr. Jonas' son Davidi running it. Few people were interested in
Straight Path's portfolio of licenses in extremely high frequencies
because they don't travel far or penetrate walls and can even be
disrupted by moisture in the air.
Hedge funds bet against the stock. The shares tumbled in October
2015 when one investor, Kerrisdale Capital, started a public
campaign to argue it was overvalued, saying, "Straight Path is a
bubble, driven by hype, misconceptions, and wishful thinking."
Although Straight Path's airwaves were once considered mostly
useless, analysts now say they may play a crucial role in
ultrafast, high-capacity 5G networks that are in development. Mr.
Jonas expects they will be used for high-speed connections between
cellular sites on the edge of a network and the core landline
network.
Since going public, Straight Path's stock had traded mostly
below $30, but rose above $220 in recent days as the bidding war
waged on. It is trading at $178.40 Thursday afternoon, just below
Verizon's bid valuing the company at $3.1 billion.
"The value of spectrum is what a buyer is willing to pay," said
Craig Moffett, senior telecom analyst at MoffettNathanson. The
bidding war for Straight Path shows just how much the carriers want
to own this nationwide swath of frequencies, which "may soon be the
foundation of their entire strategy," he said.
Mr. Jonas and his fellow investors won't see all of that payoff.
Verizon's tab will include 20% of the sale proceeds, a penalty
Straight Path in January agreed to pay federal regulators for
failing to put all the licenses to use in an active network.
When the Winstar bet didn't work out for 15 years, Mr. Jonas
said he didn't think about selling. "You see the job through and I
don't think you sell assets," he said, noting his project to find
oil in the Golan Heights has lost about $100 million so far.
He was surprised, however, when a bidding war erupted for
Straight Path, saying he was happy with the initial agreement with
AT&T for $1.6 billion.
Despite his repeated success, Mr. Jonas doesn't fit the
stereotype of a New York investor. His fourth floor office in
downtown Newark, N.J. overlooks the Passaic River and Harrison,
N.J., and the décor reflects his eclectic interests. On the wall is
an original painting by Winston Churchill, an 1878 letter from
Thomas Edison, pictures of Mr. Jonas with past Republican
presidents and a drawing of him from comic legend Stan Lee. He has
a framed check for $37.02 signed by notorious Jewish gangster Meyer
Lansky in 1936 to the New York Telephone Company, now part of
Verizon.
Mr. Jonas says he can't say "no" or fire people and has twice
failed at retirement. He is unapologetic about his frequent use of
complex controlling stock structures in his companies to maintain
his influence. At IDT he controls 70% of the vote, according to a
2016 securities filing. "Shareholder interest isn't always the most
important thing," he said in a Wall Street Journal interview in
2015.
The IDT headquarters building in Newark is draped with an
enormous American flag and a yellow sign under it that says
"America is too great for small dreams," a quote by former
President Ronald Reagan.
He has family members scattered throughout his businesses,
including some of his nine children. His son Shmuel is chief
executive of IDT, while Davidi runs Straight Path. Another son,
Michael, was involved in the search for shale oil in Mongolia and
is chairman of cellphone ringtone maker Zedge, which was spun off
from IDT in 2016.
His son-in-law is chief operating officer for Genie Energy Ltd.,
his power and oil-related company. His sister Joyce Mason is
general counsel of IDT. A nephew, Jacob Jonas, is spearheading
IDT's technology developments.
Mr. Jonas's latest interest is far from telecom: Drug developer
Cornerstone Pharmaceuticals Inc. is taking up 90% of this time. The
Cranbury, N.J., company is testing a treatment targeting pancreatic
cancer and certain blood cancers. Earlier this year, the Food and
Drug Administration gave approval for the drug to move further into
human testing.
With the windfall from Straight Path, Mr. Jonas now doesn't have
to search for partners to help fund development of the drug. "We
had this cancer company we couldn't fund," he said. "I'm just going
to write the checks myself."
Write to Thomas Gryta at thomas.gryta@wsj.com and Drew
FitzGerald at andrew.fitzgerald@wsj.com
(END) Dow Jones Newswires
May 11, 2017 20:51 ET (00:51 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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