Lehman: Crown Castle offer adds 8.33 points of value, but those bullish on stock may decline

By Ronda Fears

Nashville, Nov. 10 - Crown Castle Corp. is offering to purchase for cash all its $230 million 4% convertible senior notes due July 2010, and Lehman Brothers Inc. analysts said it appears to add 8.33 points of value to the issue. While some holders may choose to participate, depending on the trading level of the issue, the analysts said fundamental holders bullish on the stock might decline.

Lehman analysts believe the tender offer currently creates incremental value of 8.33 points relative to the fair value of the convertible, assuming a volume-weighted average price and Dec. 7 stock price of $16.60. The analysts used a volatility assumption of 35% and credit spread of 200 basis points over Libor.

Following the offer on Monday, the 4% convertible was quoted around 178.5 versus $16.60 for the stock, representing a 4 point expansion on a dollar neutral basis and a 1 point discount to the tender offer value at the current stock price of $16.60, Lehman analysts said.

Holders of the issue should not tender if the value of the convertible using Crown Castle's closing price on Dec. 7 exceeds the tender value established by the company on Dec. 6, the analysts said in a report Wednesday. But if the final Crown Castle average price level equals or exceeds the maximum tender stock price of $16.23, and if Crown Castle stock on Dec. 7 is less than or equal to $17.61, holders would realize greater value by tendering.

Moreover, the analysts added that fundamental holders who are bullish on the stock may opt to abstain if they see the stock rising above $17.61.

The value of the offer is contingent upon a 10-trading-day volume-weighted average price calculation on Crown Castle common stock from Nov. 19 through Dec. 3. Crown Castle will announce the figure to be used in the final offer calculation by 9 a.m. ET on Dec. 6, giving holders two full trading days from the time of the announcement to decide whether or not to tender.

Holders have until Dec. 7 to tender their securities

The tender value calculation formula established by the company translates into effective maximum and minimum volume-weighted average prices of $16.23 and $2.91, respectively.

Crown Castle said the offer was designed to reduce debt as well as to avoid reporting the potential dilution related to the contingent conversion feature of the issue. The convertible has call protection through July 2008; so, despite it being deep in-the-money, the company cannot currently call it.

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