American Tower Corp. (AMT - Analyst Report) continues to expand its wireless tower portfolio by striking a deal with the Latin American wireless operator, NII Holdings Inc. (NIHD). NII Holdings will sell 2,790 Brazilian towers and 1,666 Mexican towers for $413 million and $398 million, respectively.
American Tower will finance the whole transaction through cash on hand and funds accessible from revolving credit facility. The deal is expected to close by the end of 2013.
However, the towers will be leased back to NII Holdings for 12 years. The lease agreement is expected to produce an annual turnover of nearly $149 million with a gross margin of 37%.
NII Holdings is targeting the highly lucrative Brazilian and Mexican markets, which are dominated by America Movil S.A.B. de C.V. (AMX - Analyst Report) and Telefornica SA (TEF - Analyst Report). Thus, to consolidate its position in these markets, NIHD plans to aggressively rollout its 3G service integrated with the Push to Talk (PTT) technology by the end of 2013. However, lack of funds has been a bottleneck for the company.
In order to finance its 3G deployment, NIHD plans to raise nearly $1 billion in fiscal 2013 either through tower sale or by issuing senior notes.
At the end of the second quarter of 2013, American Tower managed 56,193 communications towers, comprising 55,720 Wireless network towers and 473 Broadcasting towers. Geographically, the company operates 22,720 wireless towers and 274 broadcast towers in the U.S. along with 33,473 wireless towers and 199 broadcast towers outside the U.S.
At the end of 2012, American Tower bought 2,000 wireless towers from KPN’s German subsidiary, E-Plus, for 393 million. Moreover, the company is about to acquire 8,000 wireless towers of Tower Vision, a privately held Indian wireless tower operator, for nearly $572 million.
Hence, we believe that a further acquisition of nearly 4,500 towers will not only expand American Tower’s international presence but will also boost its top line as these emerging markets are gradually adopting 4GLTE technology.
On the flipside, it may also exceed American Tower’s annual capital expenditure target of $625 million, thereby pressurizing its cash position. Moreover, such buyout proposals may further expand the company’s present debt-to-capitalization ratio of 0.71.
American Tower currently has a Zacks Rank #3 (Hold).