Deutsche Telekom AG (DTE)’s T-Mobile USA agreed to sell the rights to operate 7,200 cellular towers to Crown Castle International Corp. (CCI:US) for $2.4 billion, providing cash to invest in the carrier’s U.S. wireless network.
Crown Castle will have the exclusive rights to lease and operate the antenna towers for about 28 years, with the option to fully acquire them at the end of the lease, the companies said in a statement today. Crown Castle will make the payment at the closing of the transaction, which is expected in the fourth quarter, the companies said.
Deutsche Telekom set out to sell T-Mobile USA’s towers after a failed $39 billion takeover of the carrier by AT&T Inc. (T:US) last year. The deal will help the company raise money for wireless spectrum and network enhancements, while allowing T- Mobile to rent back antenna space on the towers. Crown Castle can then use the assets to provide service to other carriers.
“They got a very steep price at $2.4 billion,” said Kevin Smithen, an analyst with Macquarie Capital USA Inc. “And the 28-year deal signifies that T-Mobile is likely going to be in the U.S. for the long term.”
The tower sale comes nine days after Deutsche Telekom hired former Global Crossing Ltd. Chief Executive Officer John Legere as T-Mobile USA’s CEO. Legere said his plan is to restart subscriber growth and go after No. 3 carrier Sprint Nextel Corp. (S:US) T-Mobile ranks fourth in the U.S. market.
Deutsche Telekom said it’s committed to T-Mobile’s effort to regain ground it had lost last year during the scuttled AT&T takeover attempt. In February, Deutsche Telekom said it would boost U.S. network spending budget by $1.4 billion over two years to win back customers who want faster, fourth-generation service on their smartphones.
“T-Mobile USA is working aggressively to make our 4G network stronger, faster and more dependable for consumers, and this transaction will support our ongoing $4 billion network modernization initiative,” Legere said in the statement.
It’s not uncommon for wireless carriers to sell towers when they need cash, said James Ratcliffe, an analyst with Barclays Capital Inc. in New York.
The leaseback arrangement mirrors the real-estate deals that let businesses sell their buildings while still occupying them. Sprint sold about 3,300 towers to TowerCo LLC in 2008 raising $670 million in cash.
“T-Mobile got a good amount of cash and good lease terms,” Ratcliffe said. “This frees up financial capacity for upgrades in the U.S., and they don’t need to be as dependent on financing from Germany,” he said.
Crown Castle shares fell 1.3 percent to $64.10 at the close in New York today. Deutsche Telekom fell 1.6 percent to 9.58 euro in Frankfurt.
In a separate statement, Bonn-based Deutsche Telekom said the deal will reduce the company’s debt by 1.9 billion euros ($2.4 billion.)
“We have found an intelligent way to strengthen T-Mobile USA among competitors and reduce the group’s net debt at the same time,” Deutsche Telekom Chief Financial Officer Timotheus Hottges said in a statement.
T-Mobile USA, based in Bellevue, Washington, has been cited by analysts as an acquisition target. The company is the only major U.S. carrier that doesn’t offer Apple Inc. (AAPL:US)’s iPhone. That’s put it at a disadvantage to its three larger rivals, Verizon Wireless, AT&T and Sprint.
Buying T-Mobile USA would help Sprint gain the critical mass needed to take on AT&T and Verizon, Smithen has said. Jason Armstrong, an analyst at Goldman Sachs Group Inc., said earlier this month that it might make sense for Sprint to buy MetroPCS or its prepaid rival Leap Wireless International Inc. (LEAP:US)
T-Mobile was advised by TAP Advisors and Deutsche Bank Securities Inc., according to the statement.
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