Elliott Investment Management L.P., which manages funds that collectively have an investment of approximately $2 billion in Crown Castle Inc., released a letter and presentation today detailing its perspectives on the company’s history of underperformance and calling for significant changes.
One of those adjustments is for the Board of Directors to immediately provide an interim CEO to replace Jay Brown, who has held that position since 2016. Within three months, Elliot wants a new CEO to start and review a newly enacted fiber review committee within another three months and present their findings to investors.
Elliott’s 2023 “Restoring the Castle” campaign follows its 2020 “Reclaiming the Crown” campaign, which called for enhanced governance and fiber-strategy improvements at Crown Castle. In its letter today, Elliott noted that the company “disregarded our data-driven analysis, and our recommended changes were neither made nor taken seriously.”
As a result, Crown Castle has continued to underperform its peers over all 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, Elliot said.
In its letter, Elliott wrote, “Crown Castle suffers from a profound lack of oversight by the Board, which has contributed to its irresponsible stewardship and flawed financial policy. 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 added that, “During the tenure of the current executive team, Crown Castle has underperformed its direct peers by an average of 85% in total return, which translates into nearly $26 billion of unfulfilled shareholder value.”
Elliot said that Crown Castle’s management repeatedly claims fiber is the “same business model” as towers and that their yields will converge over time. Unfortunately, Elliot said, ”the opposite is happening as the spread between fiber and tower yields continues to expand.”
Between mergers and acquisitions ($11 billion) and CapEx ($8 billion), Elliot said Crown Castle has allocated $19 billion to fiber – nearly half its current market cap. They noted that Crown Castle’s fiber investment provides a cumulative return on invested capital of only 5.8%, well below the company’s weighted average cost of capital of $9.1%
Beginning in 2011, according to Elliott, Crown Castle’s fiber strategy has been a bet on the proliferation of small cells on a massive scale. However, the market for U.S. small cells continues to underperform expectations.
In response to Elliott’s allegations, Crown Castle issued the following statement: “We value the views of all our shareholders as we seek to better understand their perspectives on our strategy, performance and business objectives. We look forward to reviewing Elliott’s materials and are open to commencing a constructive engagement with Elliott. The Company’s Board of Directors remains confident in Crown Castle’s executive leadership as the Company continues to act in the best interests of all shareholders.”