Investor Elliott Management shared a letter it wrote, titled, “Reclaiming the Crown” to Crown Castle International (CCI) this week, which addressed four main issues. Elliott, which took acquired a $1 billion stake in CCI, discussed CCI’s lower returns versus its peers; its view that the company’s fiber strategy had been dilutive; misaligned incentives and insufficient oversight in the letter.
Elliott’s recommendations included a lower CAPEX as a percentage of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), which translated into higher unlevered FCF (Free Cash Flow), which would finally lead toward a growth in dividends per share (an $8 dividend per share by 2023 was projected).
“In its letter it argues the tower business – which represents the majority of CCI’s Cash Flow – is the “BBE” (best business ever)—we agree,” Wells Fargo Securities Senior Analyst Jennifer Fritzsche said. “It then looks at the fiber business – as a business where CAPEX is much more intensive unlike the passive infrastructure investment of the towers. Elliott argues that CCI has spent more on fiber CAPEX than the typical fiber company. This has led to negative FCF and lower ROI. Elliott argues that its fiber business can be successful if it is able to do what Elliott suggests.”
The Wells Fargo Securities analyst team also stated it understood a lot of Elliott’s suggestions, but still saw value in CCI’s fiber strategy.
“In our view, the main spender of small cells has been Verizon,” Fritzsche said. “We believe with the new T-Mobile and greater urgency from AT&T there will be a greater lease up of these assets. While we also understand the high CAPEX 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 US macro sites – we believe CCI is well equipped to leverage both macros and small cells as important tools in the 5G ecosystem tool box.”
CCI answers back
CCI released a statement in response to Elliott Management’s letter, Seeking Alpha reports. The company argued that the $30 billion investment in its asset portfolio during the last decade put it in a position to capture the market of increased demand for mobile data and deploy 5G networks in the United States.
“Since its inception over 25 years ago, Crown Castle has established an unmatched portfolio of towers, small cell networks and fiber, which are all integral components of communications networks and are shared among multiple tenants,” the company said in its statement. “By continuing to execute on our strategy to own and operate this critical infrastructure within the communications ecosystem in the United States, we believe we are providing the best opportunity for Crown Castle to generate significant growth while delivering compelling returns for shareholders.”
CCI’s statement also addressed that its Board of Directors and management team were open to all ideas to “enhance shareholder value.” The company said its leadership had met with Elliott’s team numerous times to understand and evaluate its assumptions as well as Elliott’s proposed changes to CCI’s strategic plan.
“While we firmly believe our strategy best positions Crown Castle to deliver near- and long-term value creation, we remain open to having continuing dialogue with Elliott, as we do with all shareholders,” the company said.