Crown Castle International Corp. (NYSE:CCI - news) on Friday said it will buy smaller rival Global Signal Inc. (NYSE:GSL - news) for $4 billion in stock and cash to create the biggest U.S. operator of towers that transmit calls to and from cell phones.
The deal follows a spate of consolidation in the U.S. wireless broadcast tower industry, where Crown and rivals such as American Tower Corp. (NYSE:AMT - news) and SBA Communications Corp. (Nasdaq:SBAC - news) compete to win business from four national cell phone service providers.
After the acquisition, Crown Castle will operate more than 22,000 towers, supplanting American Tower as the industry leader, the company said. The deal will increase Crown Castle's towers in top U.S. markets including Los Angeles, Detroit, Milwaukee and Las Vegas.
Under the terms of the deal, Global Signal stockholders can convert each of their shares into 1.61 Crown Castle shares, or receive $55.95 cash per share. That represents a 12 percent premium over Global Signal's closing price on Thursday of$50.10.
Global Signal shares rose $4.71, or 9.4 percent, to $54.81 in midday trade on the New York Stock Exchange. Crown Castle shares fell $1.19, or 3.4 percent, to $33.56, also the NYSE.
Shares of SBA rose $1.16, or 4.6 percent, to $26.22 on Nasdaq. One analyst said SBA could be next on the auction block.
Crown Castle will also assume $1.8 billion of Global Signal debt. It expects the deal to close in the 2007 first quarter.
The total cash consideration is subject to a cap of $550 million, Crown Castle.
U.S. tower companies have expanded their businesses in recent years amid strong wireless subscriber growth. As the subscriber growth rate slows, future tower growth is expected to come from demand for more tower space for high-speed data services.
IS SBA NEXT?
Stanford Group analyst Clayton Moran said the deal would help Crown Castle serve operators looking to quickly expand services such as high-speed data. He sees SBA as the next likely candidate for an acquisition.
"Given the consolidation trend, we think that SBA becomes the next target. Whether it's in six months or a year, we think they will be acquired," said Moran.
The Global Signal deal doubles the number of U.S. towers Crown Castle owns, to more than 22,000, and helps the company grow its revenue and earnings faster than it would have on a stand-alone basis, Crown Castle Treasurer Jay Brown said.
Global Signal's three largest shareholders, which own about 40 percent of its shares, have entered voting agreements in favor of the Crown Castle deal, the companies said.
This is Crown Castle's biggest deal since 2000, when it bought towers for $1.2 billion from GTE, now part of Verizon Communications (NYSE:VZ - news).
Crown Castle bought privately held Mountain Union Telecom for $309 million in July.
American Tower bought SpectraSite Inc. for $3.1 billion last year, and SBA bought AAT for $1 billion earlier this year.
Crown Castle said it expects to finance the cash portion of the deal through its existing credit facilities and an add-on to an existing term loan of $300 million.
It expects to have total debt of about $5.4 billion and net debt of $5.3 billion after the deal.
It said the acquisition will yield cost savings of $12 million to $15 million annually, which are expected to be realized within 12 months after the deal's close.
JP Morgan and Morgan Stanley acted as financial advisers for Crown Castle, and Cravath, Swaine & Moore were its legal advisers. Global Signal's financial advisers were Goldman Sachs and Banc of America, and its legal advisers were Skadden, Arps, Slate, Meagher & Flom.
