Crown Castle To Buy Global Signal For $5.8 Billion

NEW YORK -(Dow Jones)- Crown Castle International said Friday that it agreed to acquire Global Signal for $5.8 billion in a cash-and-stock deal that will make it the largest cellular-tower company in the USA.

The cellular-tower industry, which owns and manages networks of tower and rooftop antenna sites, is going through a consolidation phase similar to that of the wireless carriers they serve. Tower companies are looking to take better advantage of the increased wireless traffic and the need for carriers to upgrade to a 3G network.

The deal was struck because Global Signal offers Crown Castle a chance to expand. "This is not a transaction done for synergies, this is all about growth and enhancing the growth profile," Crown Chief Executive John Kelly said during a conference call to discuss the deal.

Under terms of the deal, Houston-based Crown Castle will assume $1.8 billion in estimated debt. Global Signal shareholders can elect to convert each of their shares into 1.61 Crown Castle shares or take $55.95 in cash. The cash component is capped at $550 million.

Depending on whether shareholders take the stock or cash option, the premium ranges between 11% and 11.7% to Thursday's closing price of $50.10. While the premium is relatively modest, Global Signal's stock has been trading near its 52-week high of $52.98 set in May. Because of their position, Wall Street places a premium on tower stocks over the wireless carriers.

Global Signal's stock recently traded up $5.01, or 10%, to $55.11, a little bit off of its 52-week high of $52.98 set earlier Friday. Crown Castle's shares recently fell 72 cents, or 2.1%, to $34.03.

The low premium for Global Signal doesn't bode well for the company results for the third quarter, Citigroup analyst Michael Rollins said in a note. That's after the company posted minimal organic growth in the prior period.

Crown Castle expects to finance the cash portion of the deal through debt. Last month, Standard & Poor's removed it from CreditWatch with negative implications. It also reiterated its "BB" and stable outlook on the company's credit rating. S&P noted that the company also expects to engage in "material share repurchases over the next several years, using internally generated cash and debt incurrence."

Chief Financial Officer Ben Moreland said the company will continue to take on debt and use its growing cash flow to buy back stock. The company wouldn't consider a dividend until its cash flow growth rate slowed, he added.

The deal combines the second- and third-largest U.S. tower companies. Together, Crown Castle and Global Signal will own more than 24,000 towers, including more than 16,000 towers in the top 100 markets. American Tower which became the largest player following its acquisition of SpectraSite last year, owns roughly 22,000 towers. In March, SBA Communications acquired AAT Communications Corp. and runs 5,300 towers.

For Crown Castle, this represents a shift in strategy. Rollins noted that the company has historically been more focused on buying back shares than making major acquisitions. The analyst doesn't own shares in either company, but Citigroup managed an offering for Global Signal, and has a significant financial interest in Crown Castle.

Kelly said that, despite the recent acquisitions, he doesn't necessarily see more deals between the bigger players. He noted there were many privately held companies that could be scooped up as the industry consolidates.

"The deal is clearly positive for Global Signal," Banc of America analyst David Barden said in a note. He added, however, that the short-run impact "appears somewhat more mixed." (Barden doesn't own shares of either company; Banc of America has an investment-banking relationship with Global Signal and owns at least 1% of Crown Castle's stock.)

In addition to the current 3G network buildout, more carriers plan to invest in new networks as a result of the recent Federal Communications Commission spectrum auction. With new licenses, companies such as Deutsche Telekom's T-Mobile USA, Leap Wireless International and privately held MetroPCS Communications Inc. are looking to expand. Early Friday, T-Mobile said it would spend $2.66 billion over the next several years.

Global Signal's three largest shareholders have agreed to vote shares representing about 40% of Global Signal's shares outstanding in favor of the transaction.

The deal is expected to close in the first quarter. Crown Castle forecast merger cost savings of $12 million to $15 million a year, realized within 12 months after the deal closes. Moreland said he also expects the acquisition to enhance its ability to meet its long-term target of 20% to 25% annual growth in recurring cash flow per share. He added, however, that he believes the company's estimates are conservative.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 7th October 2006