Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The markets are eerily quiet this Monday. The Dow Jones Industrial Average (DJINDICES:^DJI) trades sideways with only a few of its 30 member stocks moving more than 1% in either direction.
One of those rare significant moves comes from telecom giant AT&T (NYSE:T), notching the Dow's second-largest gain with a 1.2% jump. AT&T just monetized its network of cellphone towers in a multibillion-dollar deal with Crown Castle International (NYSE:CCI). The agreement follows (way, way behind) a similar deal between AT&T and American Tower (NYSE:AMT) made some 13 years ago, leaving Ma Bell with few directly owned and operated cell towers under its vest.
Crown Castle agreed to buy 600 of AT&T's cell towers and lease the rights to operate another 9,100 towers for the next 28 years, on average. Crown Castle will pay AT&T $4.85 billion up front, then sublease some space on these towers right back to AT&T for at least 10 years.
Crown Castle's latest 10-K filing showed it has 29,800 towers in the U.S. market (including Puerto Rico), so the network just grew by one-third. American Tower, which is Crown Castle's nearest local competitor, manages more than 22,000 American towers.
AT&T doesn't expect the deal to impact its financial results at all. The old American Tower deal categorized the payments as deferred revenue with a very slow drawdown into recognized revenue, and the new contract should look similar.
JPMorgan Chase telecom analyst Phil Cusick recently estimated that AT&T has about 10,000 cell towers in its portfolio. If that estimate was correct, the Crown Castle deal will leave AT&T with a much leaner network structure, leasing nearly every tower.
AT&T investors took the announcement as good news, freeing up cash for network improvements or perhaps a strategic acquisition or two. Cell towers may be cash cows in the long run, as American Tower and Crown Castle have proven, but AT&T clearly prefers a quick payout right now. Add AT&T to your Foolish watchlist to see what AT&T plans to do with this nearly $5 billion cash infusion.
Crown Castle's shares actually retreated more than 1% on the news, regardless of the long-term cash-flow value the deal unlocks. The agreement will put some stress on Crown Castle's already debt-laden balance sheet. Investors must balance this fundamental risk against potential long-term cash gains, and many shareholders are landing on the "nervous" side of that analysis today.
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