TD 3 MORE DRAMA AS INITIAL BIDS RAISED; AUCTION SET FOR CASA'S 5G CLOUD/RAN ASSETS
THE TD COWEN INSIGHT
Based on an audio recording of a status conference earlier this week for the sale of Casa's 5G Cloud/RAN assets, Lumine increased its bid to $20mm to match Skyvera's increased bid and Casa decided to hold an auction. We do not know the winning bid, which could be revealed today at the sale hearing. We continue to believe there could be some near-term downside risk if Lumine's bid is unsuccessful.
Impact: NEUTRAL
Below are key highlights from the status conference:
ESW/Skyvera Asset Purchase Agreement (APA) changes: 1) increased its offer to $20mm (from $18mm); 2) removed the TSA condition; and 3) changed the timing of offers to employees and they are willing to retain more employees than Lumine.
Lumine was amending its APA to match the $20mm bid by Skyvera (was $15mm).
Verizon's lawyer indicated that it is "very comfortable with Lumine and how its business
operates."
However, Verizon is "less comfortable" at this point with Skyvera, who is a new player to them. It has "uncomfortable feelings about how they would interface with Verizon." Business discussions with Skyvera are ongoing and Verizon indicated that it would want to reserve its right to seek adequate assurance of future performance if Skyvera were the winning bidder.
ESW/Skyvera indicated that its $20mm bid is not contingent on retaining Verizon's business/contracts, and it is willing to move ahead with the acquisition without it. Casa acknowledged receipt of ESW/Skyvera's $20mm deposit that is now being held in escrow.
Recall Verizon accounts for ~80% of the revenue of the 5G Cloud/RAN assets.
The committee of creditors stated their financial advisor confirmed that Casa's liquidity is very constrained and that the net sale proceeds of the 5G Cloud/RAN assets would be needed to fund the bankruptcy process. They are also pleased at the increased bids and plans for an auction.
Verizon's endorsement is big, in our view, even if Lumine does not win. Although we do not know how much Verizon's endorsement will impact the final outcome, we believe their support of Lumine and its bid speaks to the high quality of Lumine's management team and operations/strategy. We think this key endorsement should further bolster its strong reputation in the market and give increased comfort to potential sellers, especially those looking at carve-out deals and wanting to ensure (mutual) end customers are treated well.
Although Lumine raised its bid, we believe they will remain disciplined in the auction. If Lumine loses this deal, we believe it could be replaced with the many carve-out opportunities in its pipeline.