Keeping Us Connected: Allen & Overy advise American Tower Corporation on their latest acquisition

February 4, 2021

3 min read

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What's going on here?

Allen & Overy (A&O) have advised American Tower (AMT) on its acquisition of Telxius Towers from Telefónica, strengthening its position in Europe.

What does this mean?

On 13 January 2021 AMT announced that it had reached a definitive agreement with Telefónica, led by A&O’s cross-border team of corporate and real estate experts. This is set to establish AMT as one of the largest independent communications infrastructure providers. The $9.4bn deal is thought to close at the beginning of the second quarter of the year, following government and regulatory approvals.

Tom Levine, A&O’s co-head of Telecommunications, Media and Technology explains that “there is currently a great deal of activity in digital infrastructure, and complex multi-country transactions”. This acquisition comes as no surprise as AMT has been searching dozens of deals across Europe for years. It hopes that this will not only “broaden our partnership with Telefónica [but] provide broadband connectivity for billions of people”. This is of particular importance given how the current pandemic has changed not only the way we work but how we connect.

What's the big picture effect?

Telxius is the leading communications infrastructure operator in the German market, with over 31,000 sites. As such, this acquisition will be transformational for AMT which already spans 20 countries over 5 continents. It expects to spend a further $500m on the construction of approximately 3,300 new sites through Germany and Brazil. Though this expansion won’t be complete until 2025, this acquisition will help AMT compete with Cellnex Telecom which is currently Europe’s biggest independent tower operator.

Cellnex has also been expanding and is said to have spent €10bn in the acquisition of CK Hutchison’s European towers last year. This deal comes as a blow to Cellnex whose aspirations align with AMT. Cellnex also made a bid for Telxius but failed to come to an agreement that suited both companies. We can see why when we consider that AMT paid over 30 times the yearly operating income of Telxius. As Barclays analyst, Mathieu Robilliard, comments this “reflects [the] high-level of competition for this asset”. AMT forecasts generating $410m in gross margin within its first full year of acquisition and is said to have raised the funds from Bank of America Corp.

As AMT was already a supplier for Telefónica, this deal “makes strategic sense” according to its President José María Álvarez-Pallete. It is predicted that Telefónica’s net financial debt will decrease by €4.6bn as part of their plan to manage their portfolio of businesses and assets, in a way that adds value and decreases debt. The deal reached allows Telefónica to maintain the services it currently provides in a similar way to that which it does now, therefore maintaining standards while also addressing its debt.

AMT’s mission statement pledges to “innovate for a mobile future [and] grow our assets and capabilities to meet customer needs”. This has never been more important than it is today, following the Covid-19 pandemic, which has seen an increase in remote working and limitations placed on how and when we can connect with each other. AMT has also timed its deal in line with the major network upgrade to 5G technology. It will be interesting to see how this affects the future of the newfound working-from-home economy after the pandemic.

Report written by Lauren Kent

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