In 2020 Elliott Investment Management gave Crown Castle a hard time related to Crown’s fiber ambitions. And today, Elliott is complaining again.
Elliott says it manages funds that collectively have an investment of approximately $2 billion in Crown Castle.
Today, Elliott released a letter it sent to Crown Castle’s board of directors, saying that Crown disregarded it data-driven analysis made in 2020. “As a result, Crown Castle has continued to underperform its peers over all time periods in the last 15 years; has underperformed the S&P 500 index over one-, three- and five-year periods; and has seen its stock price recently hit a six-year low,” said Elliott.
"Crown Castle suffers from a profound lack of oversight by the board, which has contributed to its irresponsible stewardship and flawed financial policy,” Elliott wrote. “The company's strategy, led by CEO Jay Brown since 2016, has been a failure, as demonstrated by the breathtaking magnitude of its underperformance."
Elliott is calling for new executive and board leadership. And it wants a review of Crown’s fiber business.
Fiber
In 2020 Crown Castle’s Chief Financial Officer Dan Schlanger said a primary driver of its fiber strategy is the future value of colocation builds on small cells.
But Elliott calls Crown’s fiber ambitions a “value-destructive strategy.” It said Crown has spent $19 billion on its fiber strategy, which is now yielding only a 6% return-on-invested-capital (ROIC).
“On an incremental basis, Crown Castle's fiber capex program is performing even worse, with a 4% ROIC since we shared our analysis in early 2020. When interest rates were near zero, these ROIC metrics were insufficient to create value; today, Crown Castle would be better off buying U.S. Treasuries,” stated Elliott.
In 2020 Schlanger argued that the importance of fiber to small cells may take time, but it will ultimately pay off for Crown the same way its core wireless tower business took time.
Coincidentally, Schlanger is set to depart from Crown Castle on March 31, 2024.
Today, Elliott said, “It is evident that profligate fiber spending has pushed Crown Castle's financial profile far away from its stated 7% to 8% dividend growth rate (despite CEO Jay Brown's false refrain that fiber enhances the dividend). All aspects of the fiber strategy must be re-evaluated, including whether Crown Castle is the best owner of its fiber business.”
Elliott also wants a new executive incentive plan that holds management accountable for return on invested capital.
In its letter, Elliott wrote that while it prefers to pursue a constructive engagement with Crown Castle, as it attempted in 2020, it intends to make its case directly to shareholders with a majority slate of alternative directors at the company's annual meeting of shareholders in May 2024.