American Tower has refuted a report by Muddy Waters Research that rated the company a “strong sell,” accusing the company of fraud in its Brazilian tower acquisition. The research firm said it has supplied evidence to the Securities and Exchange Commission that the actual sale price for the Brazilian towers was $300 million, while American claimed it paid $585.4 million, a discrepancy of $285.4 million.
“[American Towers] has engaged in a value destroying investment binge overseas, and we have identified a significant material misstatement in the company’s accounts that could amount to fraud,” stated the Muddy Waters report.
American Tower said the report contained inaccurate statements, and the company disputed the allegations of fraud concerning its acquisition of communications sites in Brazil in 2011.
The tower company said it purchased 666 communications sites for an aggregate purchase price of $585.4 million through its Brazilian subsidiary, using cash on hand from a combination of intercompany loans and equity contributions from the parent plus cash from operations. An “internationally recognized” accounting firm assisted in the purchase price allocation of the acquisition and Deloitte & Touche audited financial statements for each of the company’s last three fiscal years, according American Tower’s 8-K filing with the SEC on July 17.
Muddy Waters also claimed that American Tower’s stock price should be $44.57, representing a downside of 40 percent from the current value of mid-$70s, saying that the company has “serious challenges domestically and internationally that have not been factored into the stock price.”
The analyst community was less than impressed with Muddy Waters’ accusations. For example, Wells Fargo maintained its outperform rating on American Tower.
“The acquisition about Brazilian accounting questions was by far the most inflammatory within the analysis, in our view. The fact that [American Tower] came out swinging hard here and given the company’s strong track record, we believe this concern/worry is overdone,” Jennifer Fritzsche, Wells Fargo senior analyst, wrote in an equity research note. “Everything we heard from the wireless side at our Fiber Forum was quite bullish for the tower sector. Just this morning, [Verizon] reported $300MM higher in Q2 wireless CapEx spend than we were forecasting — and increased its 2013 CapEx outlook (citing higher wireless data growth as reason).”