Wholesale/transport services

Crown Castle Sells Australia Business for $1.6B

Crown Castle has agreed to sell its Australian business to a group of investors led by Macquarie Infrastructure and Real Assets for A$2 billion ($1.6 billion) in cash.

The infrastructure player, which generates most of its revenues from selling network capacity to US operators, said the sale would support its recently announced $1 billion cash takeover of Sunesys. That company's fiber assets are expected to strengthen Crown Castle's position in North America's fast-growing small-cells market. (See Crown Castle Bids $1B for Sunesys Fiber Assets.)

The sale will also help Crown Castle to pay off some debts, which had mushroomed to about 5.3 times annualized EBITDA in the January-to-March quarter following a spate of previous acquisitions.

Crown Castle had expressed interest in selling its 77.6% stake in Australia's CCAL in February after receiving "unsolicited" offers for the business and deciding it holds little strategic value. (See Crown Castle Weighs Sale of Australian Unit.)

During an earnings call in January, president and CEO Ben Moreland also complained that CCAL would "start to lose its tax shelter inherent in the depreciation over time," according to a Seeking Alpha transcript.

"So we will start paying more and more taxes over time, which causes us to think about it," said Moreland at the time.

Crown Castle said it would receive about $1.3 billion from the sale after taking into account its ownership stake, the repayment of intercompany debts it is owed by CCAL and various transaction fees. It expects the deal to close in the second quarter of 2015.

"The sale of CCAL allows us to redeploy capital towards our growing small cells networks," said Moreland in a company statement.

Crown Castle had expected CCAL to contribute about $100 million to EBITDA of roughly $2.15 billion this year.

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By comparison, the Sunesys transaction, which Crown Castle hopes to finalize by the end of the year, is expected to contribute between $80 million and $85 million to the company's gross margin in the first year of ownership.

Reporting a 7% increase in revenues and 23% growth in net profit for the first three months of the year, Crown Castle is aiming for a gross margin of about $2.1 billion on site rental revenues of around $3.1 billion in 2015.

While small cells currently account for just 7% of Crown Castle's site rental revenues, executives are guiding for rapid growth in this particular market.

Shares in Crown Castle were trading up 0.5% on the New York Stock Exchange at midday.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

iainmorris 5/15/2015 | 12:14:12 PM
Small cell expansion Moreland made some interesting comments about the small cell opportunity during a recent investor call. "The size of the opportunity honestly reminds us a little bit of the early days of towers are we are going about it as fast as we possibly can," he said, according to Seeking Alpha, which transcribed the call. Buying Sunesys and selling CCAL seems to make a lot of sense. 
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