NII Holdings (NIHD) shares rose over 3% yesterday following an announcement that the company would be issuing $1 billion in new convertible notes and buying back $500 million shares. Four million shares will be purchased contemporaneously with the closing of the convertible offering. Full use of the authority will retire about 3% of the outstanding shares. Essentially, NIHD is buying back shares at current prices and selling an option to buy shares near $115. The message is quite positive.
The convertible will have attractive pricing from the NIHD perpsective with around a 3% coupon and a conversion premium of 45-50%. NIHD stated that proceeds of the convertible and the green shoe if exercised would be used for the possible purchase of spectrum or other telecom assets, accelerated build out of the networks in Brazil and Chile, the balance of the share repurchase authority, the refinancing of other debt, and general corporate purposes.
Analysts applauded the move and reiterated their mostly bullish recommendations. NIHD is about to finish the build out of its Mexican network leading to a surge in operating margins and free cash flow. By authorizing and executing a share repurchase at current prices, management is showing great confidence in the business outlook and strongly indicating what the use of free cash flow will be in the future. Not to be overlooked is the fact that share repurchase is being completed following a doubling of the share price in the last 18 months and with the shares near all-time highs….
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NIHD is also financing its future growth at an attractive price. The suggested use of funds to expand networks in Brazil and Chile and possibly add spectrum and hard assets in existing or new markets is exactly as the street has expected.
I think the market got it exactly right by bidding NIHD shares up sharply on this news. My spreadsheet calculates a target price of $97 on what I believe will prove to be conservative estimates for 2007 revenues and EBITDA. Management’s announcement and the Board’s action appear to confirm my bullish outlook for NIHD shares.