Elliott Associates, LP, one of Crown Castle’s (CCI) leading stock holders with around $1 billion in shares, and labeled an “activist investor” by analysts, submitted a letter to the board of CCI yesterday saying the company “relative to its close industry peers…has underperformed on a consistent basis for more than a decade.”
The letter, entitled “Reclaiming the Crown,” recommends the company can improve its performance by targeting 40 percent ROI projects in the fiber business and dialing back on small cell development. Elliott cited CCI’s lower returns vs. peers (AMT / SBAC), the weakening of the core business due to their fiber strategy, misaligned incentives and inadequate oversight due to the long tenure of the Board. The letter is signed by Jesse Cohn, Partner, and Jason Genrich, Portfolio Manager.
Crown issued a reply shortly following the letter saying they believed small cell networks and fiber are all integral components of communications networks. “By continuing to execute on our strategy to own and operate this critical infrastructure within the communications ecosystem in the United States,” the CCI letter read, “we believe we are providing the best opportunity for Crown Castle to generate significant growth while delivering compelling returns for shareholders.”
“Members of our Board and management team have met with Elliott multiple times to fully understand and extensively evaluate their assumptions and proposed changes to our strategic plan,” the Crown statement read.
Market analysts weighed in as well with their opinions.
“Similar to Elliott, we have been unenthused by the returns that CCI has generated in its fiber segment,” said Spencer Kurn of New Street Research, “however, we saw the returns in fiber as the problem. Small cells will enhance the return profile of the fiber segment, and all of the companies we heard from during our recent ‘5G Infrastructure Transformation’ meeting series expect small cells growth to accelerate as 5G networks are deployed.”
Jennifer Fritzsche, Senior Analyst with Wells Fargo Securities, said while her firm understands many of Elliott’s suggestions, they continue to see the value of CCI’s fiber strategy.
“In our view, the main spender of small cells has been VZ. We believe with the new TMUS and greater urgency from T – there will be a greater lease up of these assets,” she said. “While we also understand the high capx concerns – pushing out a critical mass of this fiber laterals we see as a good thing – as it is getting ahead of the demand, which all checks indicate is coming. As the largest owner of U.S. macro sites – we believe CCI is well equipped to leverage both macros and small cells as important tools in the 5G ecosystem tool box,” Fritzsche said.
By Jim Fryer, Inside Towers Managing Editor