Description

I’m not counting this toward my annual minimum since it’s very illiquid and there’s not much meat to the writeup (and it’s quite a bit of copy/paste from filings) but I do think it’s a super interesting asymmetric opportunity for small funds and PAs (I used the initial pop to cover my 10/15 income tax bill but still own quite a bit).

CONXW SPAC warrants are trading at 0.15. CONX is looking to buy Dish’s retail business. We don’t know exactly how the deal will work out or if it will even close but I lay out a plausible scenario below that would result in the warrants likely worth at least 10-20x where they trade now, if not a lot more over time if any of this pans out.

CONX is Charlie Ergen’s SPAC that was originally scheduled to liquidate if they didn’t find a deal by November 2^nd, 2022. Charlie is obviously the sponsor, “simultaneously with the closing of the Initial Public Offering, the Company consummated the private placement (“Private Placement”) of 11,333,333 warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants”) to the Sponsor, each exercisable to purchase one share of Class A common stock at $ 11.50 per share, at a price of $ 1.50 per Private Placement Warrant, generating gross proceeds to the Company of $ 17.0 million…Sponsor hold[s] 18,750,000 Founder Shares”

In late October, the company filed a proxy to extend the deadline for a deal which was voted through along with massive redemptions from the SPAC on 10/31. “The Company filed a Form 8-K on November 1, 2022 notifying stockholders of the approval at the meeting of stockholders held on October 31, 2022 (the “Special Meeting”) to extend the date by which the Company must consummate a business combination from November 3, 2022 to June 3, 2023 (the “Extension”). Stockholders holding 66,651,616 shares of Class A common stock (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result, approximately $ 669.9 million (approximately $ 10.05 per share) was removed from the Trust Account to pay such redeeming holders. The Extension will provide the Company with additional time to complete a business combination. The Company has begun preliminary discussions with DISH Network Corp. (“DISH”) regarding a potential business combination involving DISH’s retail wireless business (which we refer to as the “Transaction”). The Company expects to announce additional details regarding the potential business combination if and when a definitive agreement is executed.”

The large redemption leaves 8.4m Class A shares, 18.75m Class B shares and $83m in cash in trust.

Comments from Recent Conference Calls:

Q3 2022 Earnings Call:

On the SPAC, I can't say a lot about that. But the -- I think it would -- the SPAC did have high redemption but is still intact and still a public company and still capable of doing -- nothing's really changed strategically there because in the SPAC world today, you're going to have to have a pipe and no matter what you do, you're going to have to other secured funding. So it may be a different set of shareholders. But there's still opportunity. 

 One of those opportunities that's public is that there have been preliminary discussions with DISH. Let me take this back cat off and talk about DISH. Obviously, one of the things we've talked about is we like each sector of our business to be a self-funding as it possibly can be. DBS obviously has been self-funding in the marketplace for network to move in that direction. And we think that retail wireless is in a unique position to do that as well as we enter the more lucrative postpaid business because it doesn't have any debt, it doesn't have any CapEx and it's got 8 million subscribers. So it's a pretty interesting business and one that's got a lot of growth ahead of it.

No, that -- I guess the press kind of got that one wrong that there's some preliminary discussions between a SPAC and DISH retail wireless that would be -- potentially would be a sale of a very small portion of the retail wireless business. We think a DISH that retail wires belongs in what we're doing, right? We think it's not impossible that you could sell a company, but we -- but today, it would be more likely that you would sell a portion of the company.

The only one that's public is that they had some preliminary discussions with the SPAC. But you can assume that that's not all they would look at.

$2bln Debt Raise Call (paraphrased):

Question – retail margins are 10%, can they get up to the 50% range as Dish shifts capacity internally from TMUS.

You will see immediate margin improvement once traffic goes onto their own network. Boost needs to price 20% below incumbents to gain market share so you might see margins in the 40% range in order to get to a double digit market share. When Dish first got Boost, there were some bad business practices going on, including unlimited data for prepaid subscribers. Dish has cleaned that up which means they are now poised for growth. They don’t need to clean up any more bad practices but they are now poised for growth and margin expansion. The 10% margin scales up as you move people onto your own network.

The Boost Business

Anyone can google the history behind Boost to see it was a pre-paid Sprint brand that was divested to Dish in tandem with the TMUS/Sprint merger. It gives Dish a retail operation with distribution and a brand that they aim to take upmarket to boost margins as they move traffic onto their own network. Since it’s mainly an urban brand, it jives with their initial network launch and higher population density coverage by mid-2023. By 2025, Dish’s network should cover most of the country, meaning they will be paying very little to TMUS/AT&T in roaming agreements by then.

Very simply, if the US wireless market is $200bln and Boost aims to hit double digit market share, if they get to $10bln (from $4.5bln today, <half what they estimate) and can get to a 25% EBITDA margin, that’s about $2.5bln in EBITDA. I am assuming here that of 40% EBITDA margins, Dish Wireless netco takes some of the margin.

The tough part is how this business is valued in a SPAC transaction so it’s a lot of conjecture but the interesting part is that the much smaller size of the SPAC means that Dish will issue a PIPE. I think they will essentially issue a PIPE to themselves, to Charlie’s point about selling a piece of the business to the SPAC. This also deters any additional bidders like the news story that the former founder of Boost was looking to step in and bid. Charlie also owns a large percentage of the SPAC so I would imagine he’s somewhat valuation agnostic since the ultimate goal is (1) to access the small amount of cash in the SPAC, (2) to create a separate publicly traded vehicle to value Boost, (3) separate out wireless netco so it gets more of an infrastructure multiple and (4) ultimately spin out CONX/Boost PIPE shares from Dish if that helps with future SOTP valuations. This also fits with selling Dish into DTV which further creates a wireless infrastructure play out of the remaining Dish Wireless netco.

When Dish closed the original deal, the press release listed a value of $1.4bln. Based on management commentary, they should do something like $4.2bln in 2023 at just under a 10% EBITDA margin resulting in $400m in EBITDA (they had CDMA migration costs that go away). At 6x EBITDA, that puts the value at about $2.4bln, well above the $1.4bln and along the lines of rumors of the value for Boost in the original merger divestiture.

Ex the cash in trust, that means $2.3bln in funding. If we assuming solely shares are issued in a PIPE to DISH at $10, that’s 231m shares resulting in a total of 258m shares and 30.1m warrants or 289m in FD S/O.

Should Boost/CONX get to $10.3bln in revenue at a 25% EBITDA margin in 2026 along with a 65% FCF conversion, we see $2.6bln in EBITDA and $1.7bln in FCF or $58/share at 10x FCF.

Who knows where they tender the warrants and obviously, if the deal doesn’t get done, the warrants are worthless but they trade at $0.15 and clearly no one has done any of this sort of math. I’d imagine with warrant upside to $10 or more, they are at least worth $1.50-2 here.

Catalyst

Merger closing, others understanding how much value there is here