It wasn’t an easy week for U.S.-based American Tower, as a report from Muddy Waters accused the company of a $250 million discrepancy between the price American Tower said it paid for towers in Brazil ($585.4 million) and the actual sale price, which, according to the report, would be $300 million. “If [American Tower] is aware of this discrepancy, it would amount to fraud,” the report says, noting the company has provided its research to the Securities and Exchange Commission.
American Tower denied the accusations, with CEO Jim Taiclet classifying the reported as unfounded during an interview on CNBC’s Mad Money show. American Tower issued an 8-K with the SEC to lay out all the facts. “Normally we wouldn’t respond to such an ill-informed report but it’s completely wrong and the associated allegation of fraud is something we couldn’t let stand,” Taiclet said.
“Our Brazilian deal has been audited and we feel like we have the best auditors working with us,” Taiclet noted. In a statement, American Tower outlined the transaction it made in 2011, noting the company completed the acquisition of a privately-held, independently operated tower company in Brazil, which included the purchase of 666 communications sites during the year ended December 31, 2011 for an aggregate purchase price of approximately $585 million.
The name of the seller wasn’t unveiled.
American Tower explained in a statement that to fund the acquisition the company’s Brazilian subsidiary, ATC do Brasil – Cessao de Infra-Estruturas Ltda., utilized cash on hand from a combination of inter-company loans and equity contributions from its parent, and cash from operations. “The inter-company loans of BRL 554 million or approximately $335 million are registered with the Central Bank of Brazil. In addition, the company utilized equity contributions of BRL 303 million, or approximately $184 million which are also registered with the Central Bank of Brazil.”
In addition, the Muddy Waters report rated American Tower shares a “strong sell,” suggesting the stock was significantly overvalued. Muddy Waters valued the company’s stock at $44.57 per share, or about 40% below its current trading price, saying that “[American Tower] has serious challenges domestically and internationally that have not been factored into the stock price.”
The news had a very short-term impact on American Tower shares. The company’s stock oscillated Wednesday from a high of $74.70 per share, down to as low as $71.50 per share, before closing at $73.87. Over the past month, American Tower’s stick price has varied between $71 and $78 per share.
Macquarie Research disagreed with the Muddy Waters findings, noting in a report that “it believes the stories are without merit and would take advantage of the weakness to build long positions in this high-class name.”
Wells Fargo Securities senior analyst Jennifer Fritzsche noted in a report that “while the boutique firm made many bearish comments on [American Tower], the acquisition about Brazilian accounting questions was by far the most inflammatory within the analysis.” Wells Fargo reiterated its “outperform” rating for American Tower.
Muddy Waters’ Block also said that [American Tower] tells great stories about emerging markets and frontier markets business, “but we went to the fields and the reality is very different from what the company tells you. The way the business is working overseas is just not going to work as well as it worked in the [United States,” he told Bloomberg.
The interview showed the picture above taken from the Block’s report showing a local house where Blocks said there was supposed to have towers. However, Block admitted he didn’t go to the location in Brazil; instead he used Google Maps to get the location view.
Latin America represents one of the most exciting areas of growth for the tower sector, as pointed out by Wells Fargo’s Fritzche in a recent webinar. The market is still in its infancy with carriers having just begun to sell their tower assets to tower operators.
At the end of last year, American Tower owned approximately 4,500 towers in Brazil. In its latest move, the Brazilian unit of Telefónica – Vivo – sold 1,800 towers to American Tower. In October 2012, the Administrative Council for Economic Defense approved Vivo’s sale of 1,500 towers to American Tower. In July 2012, Cade also approved the transfer of 300 towers from Telefónica to American Tower.
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