Crown Castle International Corp.’s $5.8 billion acquisition last week of Global Signal Inc. not only altered the tower industry’s leadership position, but could spark another round of consolidation among industry players, with SBA Communications Corp. seen as the next likely target.
Raymond James & Associates Inc. industry analyst Marc DeRussy said that while SBA, which counts 7,200 towers, makes for an attractive acquisition target, he believes the company can certainly stand on its own as a competitor.
However, DeRussy pointed out that with the continued consolidation, “There are fewer opportunities to satisfy the appetite of a small-cap tower investment.”
CCI, which is currently No. 2 in the tower industry with 13,000 towers, will add Global Signal’s 11,000 towers to its portfolio, catapulting it past current No. 1 American Tower Corp.’s dominate position at 22,000 towers. If CCI’s acquisition of Global Signal is successful, American Tower will drop to the No. 2 position and SBA Communications Corp. will move up one spot by default into the No. 3 slot.
CCI acquired privately held Mountain Union Telecom earlier this year for $309 million and spent $1.2 billion for GTE’s tower assets in 2000 prior to GTE merging its wireless services into Verizon Wireless.
“We expect this extraordinary combination of companies with the most towers in the best markets to create significant value to our customers and shareholders,” stated John Kelly, chief executive officer of CCI.
Under the deal, CCI will assume debt of about $1.8 billion, and Global Signal stockholders can either convert their shares into 1.61 CCI shares or cash out at $55.95 per share, which is a 12-percent premium above Global Signal’s stock price of $50.10 per share prior to the deals announcement.
To fund the cash portion of the acquisition, CCI said it plans to use its existing credit facility, which includes a revolving credit line of $250 million as well as an add-on to its secured loan of $300 million. After the closing, expected to take place in the first quarter of next year, CCI said its debt would total about $5.4 billion.
Global Signal’s stock jumped 10 percent in response to the deal to $55.26 per share, while CCI’s fell slightly to $34.23 per share.
The combined company will have an estimated enterprise value of $16 billion, and it is expected to produce annual site rental revenues of $1.2 billion. CCI said merging the two companies will generate cost synergies of between $12 million and $15 million annually within one year.
Global Signal’s three largest shareholders, Fortress Investment Funds, Greenhill Capital Partners L.P. and Abrams Capital L.L.C., represent about 40 percent of Global Signal’s outstanding shares and have already agreed to vote in favor of the acquisition.
CCI said its board will grow from its current 10 members to 13 members upon the closing of its acquisition. The board will consist of Kelly and CCI Chief Financial Officer Ben Moreland, along with eight outside directors from CCI and three outside directors of Global Signal, including its current chairman of the company board and former CEO Wesley Edens.
Raymond James’ DeRussy said CCI’s announcement was unexpected given that Global Signal went through a management change in mid-April, hiring Jerry Elliot to head the company.
Elliot had served as president of Citizens Communications Co., a New York Stock Exchange-listed firm with revenues of $2.2 billion.
In addition, Global Signal named Steven Osgood its new CFO to replace William Freeman. Osgood had been president and CFO of U-Store-It Trust, a real-estate investment trust that owns and manages more than 350 properties in 25 states.
Nevertheless, DeRussy gave the deal a thumb-up, saying, CCI will incrementally better utilize the assets of Global Signal.
“Given the tenure of the management team at Crown Castle and the proven abilities of their business process platform, they will likely leverage the assets more efficiently than Global Signal would have as a stand alone entity. Crown Castle has a more seasoned management team with a tried and true system and back office platform,” DeRussy said.
With so much consolidation among the nation’s tower companies, it’s only natural to wonder about the fate of the industry’s remaining medium and small players, such as SBA and privately owned Global Tower Partners, which owns about 2,100 towers.
