Cell Tower Merger Values Become Self-Fulfilling Prophecy — in a Good Way

24/7 Wall St.

American Tower Corp. (AMT) is seeing something rather strange in its trading activity on Friday. Its shares are rallying, despite the company spending some $3.3 billion to acquire more cell tower assets. What makes this so interesting is that the valuation actually may rekindle interest in the entire cell tower sector, and that would be welcoming for many investors who have held on as this sector has suffered while the market has been strong.

American Tower is acquiring MIP Tower Holdings, which is a private REIT that owns Global Tower Partners and related companies. American Tower already has about 56,000 towers and sites in its portfolio. As of June 30, 2013, it had nearly 23,000 towers in the United States and more than 33,000 towers internationally in Brazil, Chile, Colombia, Germany, Ghana, India, Mexico, Peru, South Africa and Uganda.

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This acquisition of GTP will add another 5,400 or so domestic towers and 800 domestic property interests under third-party communications sites. GTP also has management rights to more than 9,000 domestic sites. On top of the $3.3 billion purchase price will be another $1.5 billion in debt. Keep in mind that American Tower agreed to an $800 million deal over the summer with NII Holdings Inc. (NIHD) to purchase somewhere around 4,500 sites in Brazil and Mexico.

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We just gave a fresh synopsis of which telecom and wireless players could still be up for M&A in the final round of consolidation. American Tower's market cap is about $28 billion and shares are up more than 4.5% at $71.75. To show how hard things have been, the 52-week trading range is $67.89 to $85.26. What today's transaction does is quite simply add value to the rest of the public companies that own and operate cell towers:

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  • Crown Castle International Corp. (CCI) is up almost 2.5% at $70.90, against a 52-week range of $63.16 to $81.16.
  • SBA Communications Corp. (SBAC) is up about 1.8% at $76.70. against a 52-week range of $59.00 to $82.31.

American Tower expects that the portfolio addition will generate about $345 million in revenues and approximately $270 million of gross margin in 2014. If you value the deal solely on the 5,400 or so owned U.S. towers, this comes up to about $611,000 per tower before calculating the debt and other rights. Suddenly, SBA Communications Corp. (SBAC) is vindicated because a deal it made in 2012 was deemed pricey as it paid about $1.45 billion for 3,252 towers from TowerCo, at about $445,000 per tower. Crown Castle also has spent close to $2.4 billion to acquire T-Mobile cell tower rights in late 2012.

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Telecom and wireless mergers and acquisitions are continuing, even if the trend for M&A in the sector has now long-passed its peak.

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