How Telecom Speculator Howard Jonas Made Billions From Verizon, AT&T

By Thomas Gryta and Drew FitzGerald Features Dow Jones Newswires

Howard Jonas has struck gold. Again.

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The businessman and telecom speculator has agreed to sell one of his companies, a long-struggling wireless venture, to Verizon Communications Inc. for $3.1 billion. The deal's price nearly doubled in recent weeks after a bidding war broke out between Verizon and AT&T Inc.

It is a big premium for an obscure company called Straight Path Communications Inc. that has just nine employees and has yet to build out a network. And it is another windfall for Mr. Jonas, who made a splash in 2000 by selling a stake in internet-calling company Net2Phone for more than $1.1 billion in cash to AT&T.

"We don't sell things unless someone comes along and gives us an outrageously good price," Mr. Jonas said in an interview Wednesday. He spun off Straight Path in 2013 and owns more than 70% of its voting shares through a trust, according to a securities filing.

The 60-year-old cut his teeth selling hot dogs in the Bronx, N.Y., at the age of 14, studied economics at Harvard and eventually moved into the phone business with the founding of long-distance provider IDT Corp. in 1990. He used the windfall from his Net2Phone deal to fund an array of ventures including looking for shale oil in Mongolia, publishing "Star Trek" comic books and trying to cure cancer.

One of these forays led to the creation of Straight Path. IDT bought a swath of U.S. airwave licenses and other assets for $56 million in 2001 and 2002 from Winstar Communications Inc., which had filed for bankruptcy protection. At the time, Mr. Jonas praised the deal: "It might not top the Dutch settlers buying the Island of Manhattan for twenty four dollars, but it comes pretty close."

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The thinking was the Winstar assets would allow IDT to expand its telecom offerings to customers, but the business didn't develop as expected and led to losses that eventually piled up to $300 million, Mr. Jonas said.

"If you asked me two years ago what was the worst mistake I made in business, I would have said Straight Path," he said this week.

The business was spun off in 2013 with a handful of employees and Mr. Jonas' son Davidi running it. Few people were interested in Straight Path's portfolio of licenses in extremely high frequencies because they don't travel far or penetrate walls and can even be disrupted by moisture in the air.

Hedge funds bet against the stock. The shares tumbled in October 2015 when one investor, Kerrisdale Capital, started a public campaign to argue it was overvalued, saying, "Straight Path is a bubble, driven by hype, misconceptions, and wishful thinking."

Although Straight Path's the airwaves were once considered mostly useless, analysts now say they may play a crucial role in ultrafast, high-capacity 5G networks that are in development. Mr. Jonas expects they will be used for high-speed connections between cellular sites on the edge of a network and the core landline network.

Since going public, Straight Path's stock had traded mostly below $30, but rose above $220 in recent days as the bidding war waged on. It is trading at $178.40 Thursday afternoon, just below Verizon's bid valuing the company at $3.1 billion.

"The value of spectrum is what a buyer is willing to pay," said Craig Moffett, senior telecom analyst at MoffettNathanson. The bidding war for Straight Path shows just how much the carriers want to own this nationwide swath of frequencies, which "may soon be the foundation of their entire strategy," he said.

Mr. Jonas and his fellow investors won't see all of that payoff. Verizon's tab will include $85 million in fines and 20% of the sale proceeds, a penalty Straight Path in January agreed to pay federal regulators for failing to put all the licenses to use in an active network.

When the Winstar bet didn't work out for 15 years, Mr. Jonas said he didn't think about selling. "You see the job through and I don't think you sell assets," he said, noting his project to find oil in the Golan Heights has lost about $100 million so far.

He was surprised, however, when a bidding war erupted for Straight Path, saying he was happy with the initial agreement with AT&T for $1.6 billion.

Despite his repeated success, Mr. Jonas doesn't fit the stereotype of a New York investor. His fourth floor office in downtown Newark, N.J. overlooks the Passaic River and Harrison, N.J., and the décor reflects his eclectic interests. On the wall is an original painting by Winston Churchill, an 1878 letter from Thomas Edison, pictures of Mr. Jonas with past Republican presidents and a drawing of him from comic legend Stan Lee. He has a framed check for $37.02 signed by notorious Jewish gangster Meyer Lansky in 1936 to the New York Telephone Company, now part of Verizon.

Mr. Jonas says "he can't say no" or fire people and has twice failed at retirement. He is unapologetic about his frequent use of complex controlling stock structures in his companies to maintain his influence. At IDT he controls 70% of the vote, according to a 2016 securities filing. "Shareholder interest isn't always the most important thing," he said in a Wall Street Journal interview in 2015.

The IDT headquarters building in Newark is draped with an enormous American flag and a yellow sign under it that says "America is too great for small dreams," a quote by former President Ronald Reagan.

He has family members scattered throughout his businesses, including some of his nine children. His son Shmuel is chief executive of IDT, while Davidi runs Straight Path. Another son, Michael, was involved in the search for shale oil in Mongolia and is chairman of cellphone ringtone maker Zedge, which was spun off from IDT in 2016.

His son-in-law is chief operating officer for Genie Energy Ltd., his power and oil-related company. His sister Joyce Mason is general counsel of IDT. A nephew, Jacob Jonas, is spearheading IDT's technology developments.

Mr. Jonas's latest interest is far from telecom: Drug developer Cornerstone Pharmaceuticals Inc. is taking up 90% of this time. The Cranbury, N.J., company is testing a treatment targeting pancreatic cancer and certain blood cancers. Earlier this year, the Food and Drug Administration gave approval for the drug to move further into human testing.

With the windfall from Straight Path, Mr. Jonas now doesn't have to search for partners to help fund development of the drug. "We had this cancer company we couldn't fund," he said. "I'm just going to write the checks myself."

Write to Thomas Gryta at thomas.gryta@wsj.com and Drew FitzGerald at andrew.fitzgerald@wsj.com

Straight Path Communications Inc. will pay a penalty of 20% of the proceeds from its $3.1 billion sale to Verizon Communications Inc. as part of an earlier settlement with federal regulators. "How Telecom Speculator Howard Jonas Made Billions From Verizon, AT&T" at 2:16 p.m. ET, incorrectly stated that the settlement also included $85 million in fines in the 14th paragraph. (May 11)

Howard Jonas has struck gold. Again.

The businessman and telecom speculator has agreed to sell one of his companies, a long-struggling wireless venture, to Verizon Communications Inc. for $3.1 billion. The deal's price nearly doubled in recent weeks after a bidding war broke out between Verizon and AT&T Inc.

It is a big premium for an obscure company called Straight Path Communications Inc. that has just nine employees and has yet to build out a network. And it is another windfall for Mr. Jonas, who made a splash in 2000 by selling a stake in internet-calling company Net2Phone for more than $1.1 billion in cash to AT&T.

"We don't sell things unless someone comes along and gives us an outrageously good price," Mr. Jonas said in an interview Wednesday. He spun off Straight Path in 2013 and owns more than 70% of its voting shares through a trust, according to a securities filing.

The 60-year-old cut his teeth selling hot dogs in the Bronx, N.Y., at the age of 14, studied economics at Harvard and eventually moved into the phone business with the founding of long-distance provider IDT Corp. in 1990. He used the windfall from his Net2Phone deal to fund an array of ventures including looking for shale oil in Mongolia, publishing "Star Trek" comic books and trying to cure cancer.

One of these forays led to the creation of Straight Path. IDT bought a swath of U.S. airwave licenses and other assets for $56 million in 2001 and 2002 from Winstar Communications Inc., which had filed for bankruptcy protection. At the time, Mr. Jonas praised the deal: "It might not top the Dutch settlers buying the Island of Manhattan for twenty four dollars, but it comes pretty close."

The thinking was the Winstar assets would allow IDT to expand its telecom offerings to customers, but the business didn't develop as expected and led to losses that eventually piled up to $300 million, Mr. Jonas said.

"If you asked me two years ago what was the worst mistake I made in business, I would have said Straight Path," he said this week.

The business was spun off in 2013 with a handful of employees and Mr. Jonas' son Davidi running it. Few people were interested in Straight Path's portfolio of licenses in extremely high frequencies because they don't travel far or penetrate walls and can even be disrupted by moisture in the air.

Hedge funds bet against the stock. The shares tumbled in October 2015 when one investor, Kerrisdale Capital, started a public campaign to argue it was overvalued, saying, "Straight Path is a bubble, driven by hype, misconceptions, and wishful thinking."

Although Straight Path's airwaves were once considered mostly useless, analysts now say they may play a crucial role in ultrafast, high-capacity 5G networks that are in development. Mr. Jonas expects they will be used for high-speed connections between cellular sites on the edge of a network and the core landline network.

Since going public, Straight Path's stock had traded mostly below $30, but rose above $220 in recent days as the bidding war waged on. It is trading at $178.40 Thursday afternoon, just below Verizon's bid valuing the company at $3.1 billion.

"The value of spectrum is what a buyer is willing to pay," said Craig Moffett, senior telecom analyst at MoffettNathanson. The bidding war for Straight Path shows just how much the carriers want to own this nationwide swath of frequencies, which "may soon be the foundation of their entire strategy," he said.

Mr. Jonas and his fellow investors won't see all of that payoff. Verizon's tab will include 20% of the sale proceeds, a penalty Straight Path in January agreed to pay federal regulators for failing to put all the licenses to use in an active network.

When the Winstar bet didn't work out for 15 years, Mr. Jonas said he didn't think about selling. "You see the job through and I don't think you sell assets," he said, noting his project to find oil in the Golan Heights has lost about $100 million so far.

He was surprised, however, when a bidding war erupted for Straight Path, saying he was happy with the initial agreement with AT&T for $1.6 billion.

Despite his repeated success, Mr. Jonas doesn't fit the stereotype of a New York investor. His fourth floor office in downtown Newark, N.J. overlooks the Passaic River and Harrison, N.J., and the décor reflects his eclectic interests. On the wall is an original painting by Winston Churchill, an 1878 letter from Thomas Edison, pictures of Mr. Jonas with past Republican presidents and a drawing of him from comic legend Stan Lee. He has a framed check for $37.02 signed by notorious Jewish gangster Meyer Lansky in 1936 to the New York Telephone Company, now part of Verizon.

Mr. Jonas says he can't say "no" or fire people and has twice failed at retirement. He is unapologetic about his frequent use of complex controlling stock structures in his companies to maintain his influence. At IDT he controls 70% of the vote, according to a 2016 securities filing. "Shareholder interest isn't always the most important thing," he said in a Wall Street Journal interview in 2015.

The IDT headquarters building in Newark is draped with an enormous American flag and a yellow sign under it that says "America is too great for small dreams," a quote by former President Ronald Reagan.

He has family members scattered throughout his businesses, including some of his nine children. His son Shmuel is chief executive of IDT, while Davidi runs Straight Path. Another son, Michael, was involved in the search for shale oil in Mongolia and is chairman of cellphone ringtone maker Zedge, which was spun off from IDT in 2016.

His son-in-law is chief operating officer for Genie Energy Ltd., his power and oil-related company. His sister Joyce Mason is general counsel of IDT. A nephew, Jacob Jonas, is spearheading IDT's technology developments.

Mr. Jonas's latest interest is far from telecom: Drug developer Cornerstone Pharmaceuticals Inc. is taking up 90% of this time. The Cranbury, N.J., company is testing a treatment targeting pancreatic cancer and certain blood cancers. Earlier this year, the Food and Drug Administration gave approval for the drug to move further into human testing.

With the windfall from Straight Path, Mr. Jonas now doesn't have to search for partners to help fund development of the drug. "We had this cancer company we couldn't fund," he said. "I'm just going to write the checks myself."

Write to Thomas Gryta at thomas.gryta@wsj.com and Drew FitzGerald at andrew.fitzgerald@wsj.com

(END) Dow Jones Newswires

May 11, 2017 20:51 ET (00:51 GMT)