American Tower buys Telefónica’s tower business for $9.4B

American Tower is buying Telefónica’s tower business, Telxius Towers, for about $9.4 billion. Telefónica will continue to use the towers, leasing them from American Tower. And American Tower will also market the towers to new tenants, acting as a neutral host.

Telxius Towers owns about 30,722 communications sites in Germany, Spain, Brazil, Chile, Peru and Argentina. Tom Bartlett, American Tower’s CEO, said in a conference call with media today that the towers are all 30- to 35-meter sites (about 98- to 115-foot sites) that can “significantly handle more tenancy.”

In addition, as part of the deal announced today, American Tower plans to spend about $500 million to construct about 3,300 new sites in Germany and Brazil through 2025.

Bartlett said in a statement, “This transaction is transformational for our European business…. It is also complementary for our Latin American portfolio and positions us to drive strong long-term organic growth across both regions.”

Bartlett recently spoke at a Citi investor conference where he talked about the company’s global ambitions, and he particularly stressed opportunities in India. Today, he said the purchase of Telefónica’s tower assets “will further diversify our global footprint and enhance our ability to help provide broadband connectivity for billions of people.”

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In past comments, American Tower executives have pointed out that revenue opportunities are much greater in emerging markets than in mature markets such as Europe. But they’ve also acknowledged that risks are higher in emerging markets.

This morning Bartlett said, “We’ve always sought to strike an appropriate balance between the higher growth potential of emerging markets and the attractive stability and consistency of more mature regions. And this deal fits squarely within that objective.”

The acquisition is anticipated to close in two separate transactions, beginning in the second quarter of 2021, one transaction for the European business and another transaction for the Latin American business, subject to regulatory approvals in those regions.

The analysts at New Street Research, led by Soomit Datta, estimate that of the 30,722 towers, 75% likely come from Europe and 25% come from Latin America.

American Tower expects the Telxius Towers assets to generate about $775 million in property revenue in their first full year in its portfolio.

Bartlett said he's seeing, particularly in Germany and Spain, a very similar kind of 5G build as in the United States. "They have new mid-band spectrum," he said. "There are MVNOs who have spectrum themselves and are actually looking to build.”

Telefónica’s perspective

American Tower was already Telefónica’s second largest supplier of towers after Telxius. 

Telefónica President José María Álvarez-Pallete, stated, "This is a deal that makes strategic sense within our roadmap. After this great operation we will continue to focus on our most ambitious objectives: the integration of O2 with Virgin in the United Kingdom, the purchase of Oi mobile in Brazil and the reduction of debt."

The New Street analysts wrote, “While the deal represents a nice exit for Telefónica, ahead of expectations (and without all-or-nothing renewal clauses which gives them more flexibility), it’s not transformational for the balance sheet.”

On the negative side, Telefónica is exiting a business that is seen as having great potential in the future with the buildout of 5G. Bartlett said recently that he expects operators to spend a lot of capex to deploy the next generation wireless technology, “which I think is a very strong statement for our business,” he said.