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Short-Seller Muddy Waters Sees Cracks in American Tower

August 01, 2013 | About:
CanadianValue

AMT's Q2 2013 results show the cracks in the façade of its international business, with international EBITDA flat for the past three quarters, and international operating profit margin down 470 bps from Q2 2012. Certain of the issues we detailed in our July 17th report are at least partly responsible for the deterioration in the business. AMT has attempted to paper over these issues by, on one hand, failing to respond to numerous issues we raised in our prior report; and, on the other hand, attempting to evade some fairly pointed questioning on yesterday's call. Further, we continue to take AMT to task for materially misstating the purchase price for Site Sharing. In this update, we present additional information showing that approximately $250 million appears to have gone missing in the transaction. Our conversations with a selling shareholder and a former AMT employee involved in the transaction confirm that AMT paid the selling shareholders approximately $300 million, and not the $585 million AMT claims.

We note that six banks have responded to the results by lowering price targets: Barclays, Citi, J.P. Morgan, Macquarie, Pacific Crest, and Stifel.

Dismal Q2 for International Highlights our Previously Expressed Concerns

AMT’s Q2 2013 international gross and operating margins declined 200 bps and 470 bps, respectively, since Q2 2012.1 International EBITDA growth has been close to zero for the past three quarters.

These disappointing results highlight the “feed the beast” problem of AMT’s M&A driven international growth, coupled with the distortions caused by its de facto lending business – particularly that additional tenants are not meaningfully impacting margins. The 280 bps growth YoY in SG&A as a percentage of international revenue shows both the inefficacy of AMT’s CPI-linked escalators in hedging against wage inflation, and the incoherence of AMT’s strategy of making piecemeal investments into numerous markets (i.e., Chile, Peru, Colombia, Ghana, Uganda, Germany) just because they can do deals there.

When the Beast is Hungry, Growth and Margins Drop

The below graph showing the per tower valuations of international acquisitions since 2009 illustrates the dual problems of needing to feed the beast and the distortions caused by AMT’s de facto lending business. (We excluded Site Sharing from this graph because it is an outlier and would unduly skew the trend line.)

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