American Tower Enters Europe in $9.4 Billion Telefonica Deal

(Bloomberg) -- Telefonica SA’s sale of telecommunication masts to American Tower Corp. opens a new front in the race to control Europe’s fast-growing tower industry.

American Tower is paying 7.7 billion euros ($9.4 billion) cash for about 30,700 tower sites in Spain, Germany, Brazil, Peru, Chile and Argentina held by Telefonica unit Telxius Telecom. This marks the biggest threat yet to Cellnex Telecom SA, Europe’s biggest independent tower operator.

American Tower had been evaluating dozens of deals across Europe for years but never found the right fit in terms of assets and prices, Chief Executive Officer Tom Bartlett said on a call with analysts Wednesday. With the Telefonica deal, AMT gets “premier assets” in Germany and Spain that will weave in well with the towers the company already controls in France, Bartlett said.

Most of the Telefonica towers have as few as one tenant, and as a neutral host, AMT can take advantage of that by adding other carriers to the array, Bartlett said.

“We expect to get an outsized share of the market over the next several years,” the AMT CEO said.

The arrival of AMT comes as European carriers prepare a major network upgrade to 5G technology and have sought to sell towers to help finance those costs.

Cellnex has snapped up assets across the region without much interference from U.S. rivals, including CK Hutchison Holdings Ltd.’s European masts for around 10 billion euros ($11.8 billion) in November. American Tower, along with fellow U.S. operator Crown Castle International Corp., had largely stayed away from Europe, at least until carriers started spinning off tens of thousands of masts to cut debt and pay for costly 5G rollouts.

For Telefonica, whose shares jumped as much as 11%, it will help cut a 37 billion-euro debt pile, one of the biggest in the industry.

What Bloomberg Intelligence Says

“The deleveraging need justifies the sale, and the deal should reduce net leverage on an after-lease basis by 0.3x to 2.74x.”

--Erhan Gurses, telecom analyst

Click here to read the research.

U.S. private equity firm KKR & Co. owns 40% of Telxius and Spanish billionaire Amancio Ortega owns close to 10% through his investment vehicle. The main pressure point for Cellnex is the foothold American Tower gains in Germany, the one big European market where the Spanish company is still absent.

Germany is a “real crown jewel in the marketplace” especially as the region takes a “leadership position” in building out 5G, Bartlett said.

American Tower said it would pay for the towers in a way that preserves its investment grade credit rating, and has raised financing from Bank of America Corp.

The U.S. company has focused mostly on building towers in Africa, Latin America and India to sustain its international growth. In 2019 it bought Eaton Towers Ltd. for about $1.85 billion including debt to expand in Africa. American Tower and Telefonica already have partnerships in Brazil in optic fiber networks.

Telefonica Windfall

Telefonica said it expects to book a capital gain of around 3.5 billion euros and cut its net debt by about 4.6 billion euros.

Telefonica’s shares were up 9.6% as of 3:40 p.m. in Madrid after rising as much as 11%, the biggest intraday gain since November. Cellnex was up 0.6% after initially falling as much as 2.4%.

Phone companies in the region have been reluctant to lose control of the assets, seeing them as strategically important. The deal on Wednesday shows how some are willing to rethink that approach in an effort to reduce costs and raise cash.

Vodafone Group Plc, Europe’s biggest wireless carrier, is working on an initial public offering of its tower unit in the first half of the year. Orange SA also plans to create a stand-alone tower operating unit.

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