Blackstone Makes Quiet Sale Ahead of FCC Airwaves Auction

The Davos World Economic Forum 2015
Stephen Schwarzman, billionaire and co-founder of Blackstone Group LP, left, stands in an elevator following a Bloomberg Television interview on day two of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday, Jan. 22, 2015. World leaders, influential executives, bankers and policy makers attend the 45th annual meeting of the World Economic Forum in Davos from Jan. 21-24. Photographer: Simon Dawson/Bloomberg via Getty Images
Photograph by Simon Dawson — Bloomberg via Getty Images

A quiet decision by private equity firm Blackstone Group LP to recently sell three TV stations may foreshadow uncertain returns for some selling TV airwaves and lower wireless demand in the U.S. government’s upcoming spectrum auction, industry watchers say.

The U.S. Federal Communications Commission’s auction, which kicks off on March 29, will sell low-frequency airwaves held by TV broadcasters to wireless companies and other bidders.

Blackstone-controlled investment vehicle LocusPoint Networks LLC bought at least 16 stations from San Francisco to Miami, spending $66 million since 2012, according to FCC filings and data from research firm SNL Kagan.

Other well-funded buyout firms such as OTA Broadcasting LLC backed by billionaire Michael Dell and NRJ TV LLC, funded by Fortress Investment Group, have also snatched up TV stations in the run-up to the auction.

But in late November, shortly before the FCC began accepting applications from TV stations to sell spectrum, Blackstone’s LocusPoint agreed to sell three stations in Baltimore, Detroit and Buffalo, New York, for about $24 million, according to FCC filings reviewed by Reuters. The deal closed late last month.

That’s five times the $4.8 million Blackstone (BX) paid, but just 5% of the government’s $477 million stated opening bid prices for the three stations’ spectrum licenses.

Its acceptance of the deal for $24 million implies Blackstone lowered its expectations for the auction, even as the government’s $477 million opening bid was not realistic, analysts said.

The FCC will first hold a “reverse auction,” gradually reducing its offer to the lowest amount participating TV broadcasters will accept. Wireless companies then bid for airwaves.

“There’s a general agreement among broadcasters that the opening bid prices that you see registered are high and that you won’t be getting that,” said Dr. John MacKerron, professor at Towson University who manages student-run WMJF-CD in Towson, Maryland, one of the three sold to HME.

Recon Analytics analyst Roger Entner forecasts the 2016 auction proceeds at $20 billion to the low $30 billion range. The FCC’s “AWS-3 auction” that ended last year saw record bids of $44.9 billion.

“If it would be a massive success, (Blackstone) wouldn’t sell right now, right before (the auction),” Enter said.

While spectrum in certain geographic areas around metropolitan areas is attractive, there is a glut in secondary markets, analysts said. Moreover, some of the biggest wireless bidders are still digesting their investments from the previous FCC auction that ended last year, they added.

Blackstone sold to HME Equity Fund II, owned by U.S. President Barack Obama’s 2012 campaign manager, Jim Messina, and retired National Basketball Association player Grant Hill, and others, according to filings.

Blackstone declined to comment and a lawyer for HME did not respond to requests for comment.

The three stations sold are among those in Blackstone’s portfolio with lowest opening bid prices. Stations that LocusPoint has retained in major markets such as San Francisco and Orlando say “cha-ching,” Entner said.

If HME is unable to sell the licenses, “they could sell (after the auction) for less than what LocusPoint paid for them,” SNL Kagan analyst Justin Nielson said.

OTA and NRJ have not sold stations ahead of the auction, he added.

Top U.S. wireless carriers Verizon Communications (VZ) and AT&T (T), pay-TV providers Comcast (CMCSA) and Dish (DISH) have filed to participate, but some analysts do not expect them to bid aggressively.

T-Mobile has said it needs low-frequency spectrum for network enhancements. Sprint Corp will sit out.

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