Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of NII Holdings (OTC:NIHDQ) jumped more than 23% Monday after Telefonica (NYSE:TEF) signed an agreement to provide wholesale voice and data services to NII's Nextel Brazil and Mexico subsidiaries.
Telefonica stock traded relatively flat on the news.
So what: While Telefonica and NII's subidiaries will continue to manage their own spectrum and network assets separately to provide competing services, the deal is undoubtedly a big win for NII's Nextel customers, who will enjoy greatly expanded voice and data service area coverage through Telefonica's 3G wireless networks. And while financial terms of the agreement weren't disclosed, you can bet NII's expanded reach will come at a significantly lower cost than building out the network itself. At the same time, in Brazil and Mexico, respectively, this gives Telefonica's Vivo and Movistar commercial brands a way to squeeze out additional profits by leveraging their existing network capacity.
Now what: Moreover, the move could mean Telefonica -- a $75 billion business -- is potentially considering an acquisition of the much smaller NII Holdings, whose shares are currently trading more than 70% below 52-week-highs as the company has struggled to profitably compete with larger rivals.
As a result, while I'm not willing to bet on an acquisition as a sure thing, I can't blame investors for bidding up shares of NII Holdings today.