After American Tower announced they were entering into a deal with Verizon to acquire their tower portfolio the analysts went to work. Here’s what they have to say about the biggest deal so far this year:
VZ Towers Not the Kind of Deal We Like To See From AMT; Shift In Strategy Concerning; Downgrading To Neutral
Spencer Kurn and Jonathan Chaplin of New Street Research said, “We are downgrading AMT to Neutral on the heels of the VZ Tower transaction. We were cautious on the terms of the deal last night, and we didn’t learn anything on the conference call today that would change our view. In fact, the transaction appears modestly worse than we initially expected (the buyout after 28 years is larger than we expected and SG&A is higher than we expected) and we are lowering our target to $107.”
Balancing the Portfolio At A Steep Cost; Expecting Pressure On Stock Today On U.S/ Growth Dilution
Will Clayton and Kevin Smithen at Macquarie Securities noted, “Why did AMT do it? We believe that AMT is interested in acquiring assets in India and Africa and that it felt its equity and bondholders would not want to see International revenue climb above 40% of the total rental revenue. Prior to the VZ deal, we estimated that 35% of AMT’s rental revenue would come from Int’l. in 2015 and that number was increasing given the higher growth rates. We would expect negative reaction to the deal today and over the next few weeks as we feel that the market expected CCI to buy the VZ assets and the market may have to recalibrate AMT’s US growth rates lower.”
American Takes Crown Jewel, But At A Premium Price
Colby Synesael of Cowen and Company commented, “Our take: the fact that the generous deal terms were repeated is a signal to a bullish industry outlook. We view the deal favorably, and like all carrier deals stress the importance of lease-ups to the business case. American’s CEO said as much in last night’s press release highlighting the importance of “aggressively marketing these relatively under-utilized towers to additional tenants.” We believe the fact that these are the last remaining large U.S. assets played a role in the historically outsized purchase price, however still justified considering American’s strong equity currency and ongoing underlying demand from carrier customers. Specifically, carrier competition is at escalated levels where network performance are table stakes to compete. The unprecedented AWS-3 spectrum results and small cell deployment are two solutions to help keep up with higher than expected demand, however with new (low latency) applications, notably M2M and especially VoLTE, carriers will need more to keep up with more aggressive LTE network densification in the form of cell-splitting, a situation that American is banking on and will drive higher yields with these assets.”
AMT Wins VZ Towers; Price Balanced by Growth Opportunity / Increased U.S. Exposure
Jonathan Schildkraut of Evercore ISI said, “Based on our last published model, we value AMT shares using a DCF at $109. Key risks include: (1) wireless carrier consolidation, (2) technology dis-intermediation, (3) FX fluctuations, and (4) exposure to markets which may not have the same property rights protections or stability of economy as the U.S.”
FTR Gets Wireline, AMT Gets Towers, VZ $15B
AMT Buys Verizon Portoflio
Jennifer Fritzsche of Wells Fargo said, “AMT said it will be focused on closing and integrating the assets from its acquisitions in U.S., LatAM and Africa, but remains committed to being in the M&A market. Management noted the acquired tower portfolios tend to have significant cash flows, which can be leveraged for incremental inorganic opportunities. We believe this is an important transaction for AMT, as it secures the final remaining large carrier portfolio in the U.S. While we believe the multiple paid is clearly rich (23.5x TCF), we believe the company received a high quality asset with lease-up potential and minimal capital requirements.”
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