Shareholders of millimeter wave wireless spectrum owner Straight Path will receive $95.63 per share in AT&T stock, or total compensation of about $1.25 billion. The remainder will settle Straight Path's liabilities with the FCC.
Shares of Straight Path rocketed about 151% to $91.64 on Monday. AT&T stock fell 0.5% to $40.38.
The companies anticipated the deal would close within 12 months.
Carriers will deploy millimeter wave wireless spectrum, which is at higher frequencies than spectrum used for traditional networks, to support 5G wireless services, including the proliferation of networked machines and devices that are part of the internet of things. The spectrum can carry large amounts of data over short distances and requires dense infrastructure. The initial applications will be to fixed locations or machines, but connections to mobile devices and cars will come later.
"Many believe this ultra-high-band spectrum will be key in a 5G world," Wells Fargo analyst Jennifer Fritzsche wrote in a Monday report on the transaction.
The spectrum has become a focus of M&A. In addition to Straight Path, AT&T is picking up other millimeter wave spectrum with the purchase of FiberTower. Meanwhile, Verizon (VZ) picked up similar licenses in its $1.8 billion purchase of fiber outfit XO Holdings from Carl Icahn, and Dish Network (DISH) gained such spectrum in a deal with EchoStar (ECHO) .
Telecom and payments company IDT (IDT) spun out Straight Path in 2013.
The Glen Allen, Va., company hired Evercore to shop itself back in January, after the company announced a settlement with the FCC. The government had accused Straight Path of squatting on its spectrum, or not building out network infrastructure and putting the licenses to use. Straight Path agreed to pay a $100 million fine among other terms. Of the penalty, $15 million was due up front, and another $85 million would come due if the company were not sold by year's end. The FCC also will collect 20% of the sale price.
AT&T will add a nationwide portfolio of millimeter wave licenses, including spectrum in three 39 GHz and 28 GHz bands, as part of the Straight Path deal. The acquisition will build on licenses that AT&T picked up in the 24GHz and 39GHz bands through the January purchase of Fiber Tower.
Verizon gained access to spectrum in the bands through the purchase of XO Communications Inc., which closed in February. Verizon can lease the licenses now and has the option to buy them at the end of next year. Following AT&T's purchase of Straight Path, Craig Moffett of MoffettNathanson suggested in a Monday note that Verizon likely would pick up the option for the XO spectrum.
Meanwhile, satellite TV operator Dish announced an exchange of assets with EchoStar in January that will give it millimeter wave licenses. Barclays analyst Kannan Venkateshwar noted that Dish would gain spectrum in the 28 GHz band in four markets.
"This band is expected to be quite important for early 5G deployment and development," he wrote.