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A Nokia sale of mobile, especially to the US, would be nuts
Nokia's hiring of Intel's Justin Hotard to be its new CEO has set tongues wagging again about a mobile exit, but it would look counterintuitive and inadvisable.
The three big US cell tower companies – SBA Communications, Crown Castle and American Tower – seem to be taking a corporate version of the weight loss drug Ozempic by losing unwanted assets and businesses.
SBA Communications, Crown Castle and American Tower are all working to slim down their operations in the pursuit of profits. According to one financial analyst firm, it's spring cleaning season in the US cell tower industry.
"There have recently been shifts in how the Big Three towercos are thinking about portfolio construction, capital allocation and leverage," wrote the analysts at MoffettNathanson in a Monday report to investors. "Higher costs of capital, a less favorable M&A environment, leadership refreshes, and the underperformance of certain assets (with a jolt from an activist investor) have prompted the changes."
Already American Tower said it will sell its business in India to Brookfield Asset Management for around $2.5 billion. And Crown Castle has initiated a review of its small cell and fiber business. Those moves follow a bigger-than-expected drop in tower demand among US wireless network operators.
Shedding the fat
But what's next? "We believe that there are several markets that represent likely disposal candidates under SBA's tightened capital allocation framework – Canada, Chile, Colombia, Ecuador, Peru and the Philippines," according to the MoffettNathanson analysts.
Indeed, SBA officials in February said the company would embark on a "strategic review" that could involve the company selling off businesses in either the US market or internationally. They offered few details or parameters around the effort, but argued SBA is working to focus on operations with a "stable growing cash flow stream."
According to the financial analysts at TD Cowen, SBA's VP of Finance Mark DeRussy said the company has already identified one or two markets that SBA ought to exit before the end of 2024. The analysts, citing a recent meeting with the tower executive, said they do not expect SBA to exit the US or Brazil. They also cast doubt on an SBA withdrawal from Peru considering the company recently purchased 61 towers in the country from IHS.
As for Crown Castle, the firm remains in a "strategic review" of its fiber and small cell business following pressure from Elliott Investment Management, an activist investor firm.
Back and forth
The latest: Crown Castle's co-founder and former CEO, Ted Miller, is proposing his own takeover of the company. He recently nominated a slate of four nominees to the company's board "who, if elected, collectively would bring world-class tower operating and public-company CEO experience, as well as much needed leadership, management oversight, and stability," he argued.
Crown Castle's current leadership team – fronted by Anthony Melone, Verizon's former CTO – has rejected Miller's overtures.
"The in-process review of Crown Castle's fiber segment will, in all likelihood, result in some sort of meaningful change to that business, whether a complete sale, a partial sale, and/or a tightening of capex deployment filters," wrote the MoffettNathanson analysts. "However, we remain of the view that the opportunity to create value from one of these options remains limited, given our assessment of the relatively full market-implied multiple ascribed to that business. Instead, rationalizing costs and operating more efficiently – above and beyond the steps the company has already taken – may be the company's most potent opportunity to create value over the coming years."
As the MoffettNathanson analysts noted, the current changes in the US cell tower industry stem from a number of developments, including the installation of new leadership teams at each of the sector's three big players.
Moreover, M&A continues to roil the industry. Vertical Bridge, a firm backed by DigitalBridge, recently bought around 220 cell towers from Shentel for $310.3 million. Meanwhile, UScellular continues to shop its own tower portfolio.
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