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Crown Castle on a Major Buying Spree

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Leading wireless tower operator, Crown Castle International Corp. (CCI) has entered into a definitive agreement with telecom giant AT&T Inc. (T) to acquire exclusive rights of 9,700 wireless towers of the later for a total consideration of $4.85 billion in cash. Per the deal, Crown Castle will buy 600 wireless towers of AT&T and get the exclusive right to lease and operate about 9,100 others for an average of 28 years.

Additionally, Crown Castle will have the option to purchase the remaining 9,100 towers for approximately $4.2 billion between 2032 and 2048. AT&T will lease network capacity from those towers for at least 10 years for $1,900 per month per site with 2% annual rent increase. AT&T has the option to extend this lease period for another 50 years. The deal is expected to close by the end of this year. Crown Castle currently has a Zacks Rank #3 (Hold). 

We believe that this deal is a major positive for Crown Castle. Firstly, after completion of this deal, the company will become the largest wireless operator in the U.S. outpacing its closest rival American Tower Corp. (AMT). Secondly, half of the 9,700 towers of AT&T are located in the top 50 U.S. markets where wireless carriers are actively involved in network upgrades and densification. Thirdly, Crown Castle expects to add at least one additional tenet per tower, thereby increasing profitability. 

Crown Castle has decided to finance this deal through cash on hand and equity and debt financing, which will include borrowing from its existing revolving credit facility. Management stated that the deal would be slightly accretive to its adjusted operating income in 2014. In Oct 2012, the company acquired 7,200 wireless towers from T-Mobile USA Inc. (TMUS) for approximately $2.4 billion.  

This deal will also help AT&T to divest its non-core wireless tower operations and will provide significant cash to pursue its core activities. The company has decided to invest $11–$12 billion this year to upgrade its wireless and high-speed broadband (Internet) networks. AT&T is expected to acquire Leap Wireless International for around $1.2 billion. Additionally, in Jul 2013, AT&T declared its plan to repurchase 300 million of its common outstanding shares.

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