Crown Castle Urged by Activist to Lift Dividend, LeverageScott Moritz and Sarah Rabil
Crown Castle International Corp. is being urged by an activist investor to better use its balance sheet and return more money to shareholders before pursuing more acquisitions, including Verizon Communications Inc.’s wireless network towers.
In a letter today, Corvex Management LP said that Crown Castle should either increase its dividend payout ratio or boost its leverage ratio and buy back more stock. Corvex, after recent meetings with the company’s management, said that following its suggestions could boost Crown Castle’s stock to more than $100, a 24 percent jump from today’s closing price.
Crown Castle has been a buyer of U.S. towers, most recently with a $4.8 billion purchase and lease deal with AT&T Inc. last year. Verizon hired bankers to work on a tower sale by year end, two people familiar with the situation said last month, in a deal that could fetch about $6 billion. Crown Castle has told Verizon it would be interested in a deal, Jay Brown, the tower company’s chief financial officer, said last month at an investor conference.
“If the company does not have the right cost of capital, it should not be pursuing acquisitions or issuing equity, whether for Verizon’s towers or any other transaction,” Keith Meister, managing partner at Corvex, said in the letter. “But let’s be clear, we want Crown Castle to correct its capital allocation plan, reduce its cost of capital, and then bid for the Verizon towers.”
Houston-based Crown Castle rose 3 percent to $80.80 at the close in New York. The stock earlier reached as high as $82.03, the highest intraday price since the company’s initial public offering in 1998.
Since converting into a real-estate investment trust, or REIT, at the start of the year, Crown Castle’s shares had risen 6.9 percent through yesterday, underperforming the 14 percent gain in the Standard & Poor’s 500 Real Estate Index.
Crown Castle said today that it plans to address its capital allocation plans, including its dividend, on its third-quarter earnings call Oct. 31.
“We continually review our capital allocation strategy and consider all input from our shareholders as we aim to create long-term shareholder value,” Crown Castle Chief Executive Officer Ben Moreland said in the statement.
Budget priorities have become a key issue as Crown Castle aims to participate in one of the last big U.S. tower sales available.
“We expect Corvex’s letter and presentation to be well received by shareholders,” Wells Fargo & Co. analyst Jennifer Fritzsche wrote in a note to clients today. The suggestions could help Crown Castle prepare an offer for Verizon’s towers, which would fit well with its U.S. carrier concentration, Fritzsche wrote.
Tower operators can reap bigger profits when they acquire antenna sites from one carrier and lease additional space to multiple wireless carriers.
Crown Castle has been eyeing a Verizon deal. Brown said last month that Verizon towers would “provide great attractive growth opportunities in our business.”
Asked if a $6 billion tower deal is beyond Crown’s financial reach, Brown said, “No, not at all.”
Two weeks later, CEO Moreland said at a conference that a deal of that size would likely be funded with debt and equity. He said that the company could take its leverage above the high-end of its target as long as their was a path back toward an investment grade credit rating.
Led by Meister, a onetime Carl Icahn protege, Corvex said it owns about 12.6 million shares and equivalents of Crown Castle, or about a $1 billion stake. Along with Related Cos., Corvex led a successful campaign earlier this year to overthrow the management of CommonWealth REIT, now known as Equity Commonwealth, and install new board members, including Sam Zell as chairman.
REITs don’t pay federal income taxes, as long as they distribute at least 90 percent of taxable earnings to shareholders as dividends. The structure has become a popular tool to improve returns for investors and lower taxes.