Wednesday, October 18, 2006

Takeover Target: SBAC Communications (SBAC)

It is time to make some money off cell phone towers. Recently Crown Castle (CCI) offered to buy rival Global Signal (GSL) for $55.95 in stock and cash. The deal was priced at 25x cash flow. The next takeover target is SBAC Communications Corp. (SBAC). SBAC owns over 3,300 cell towers. Rival American Tower (AMT) or privately held Global Tower could be acquirers. Stanford Group Research believes SBAC is worth 35x 2007E Free Cash Flow = $34 per share. On October 9th Lehman Brothers raised their price target on SBAC to $37 and reiterated their "overweight"” rating. Lastly, there is significant open interest (+20,000 Contracts) for the March 2007 $30 Call. The October $25 calls (1,600+ Contracts) have the next largest open interest. SBAC closed at $26.53.

Why Buy SBAC?

* High barriers to entry
* Industry consolidation
* Double digit growth
* Option market (March 07 $30 Calls)
* At least 25% upside

Disclosure: As of 10/18/06 I have no position in GSL, AMT, CCI, or SBAC. I may go long SBAC.


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