Cellnex could use an outsider with a sharp knife
Corrects paragraph four to state that Cellnex “lacks”, rather than “lost”, an S&P investment grade rating. The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Pamela Barbaglia
LONDON, March 30 (Reuters Breakingviews) -Europe’s largest mobile tower company needs a diet. An eight-year M&A binge has transformed 25 billion euro Catalan firm Cellnex CLNX.MC into a telecoms infrastructure giant with more than 130,000 masts in 12 countries, but also 20 billion euros of net debt. In November Chief Executive Tobias Martínez Gimeno abruptly halted the deal conveyer belt, but he’s now out of the picture. His replacement should be an outsider, with a sharp knife.
One catalyst is the impatience of activist Chris Hohn, who previously sparred with London Stock Exchange Group LSEG.L over a decision to replace former boss Xavier Rolet. His TCI hedge fund owns 3% of Cellnex’s shares and another 6% via derivatives. On March 23 he demanded non-executive chair Bertrand Kan be ousted alongside two other directors, citing lack of progress over the CEO hunt. The board is listening: four days later it appointed board member Anne Bouverot as its new chair.
It’s not yet clear what Hohn wants beyond decrying Cellnex’s “poor corporate governance”. But one legitimate concern is the potential appointment of one of Martínez’s inner circle, which includes Chief Financial Officer José Manuel Aisa Mancho, as CEO. That would be a mistake.
Right now, Cellnex’s debt is 7.5 times its 2.6 billion euros of EBITDA for 2022, double that of rival Vantage Towers VTWRn.DE. The good news is that the company’s operational cash flow will rise 8% next year and 10% in 2025, according to JPMorgan, returning leverage to 3 times EBITDA by 2030. In such a case, its equity could be worth 40 billion euros, the U.S. bank says. The bad news is that Cellnex already lacks an S&P investment grade rating, and has short-term debt maturities to refinance next year. Its stock has dropped by a third since August 2021.
The situation calls for a fresh pair of eyes. They could belong to former Telecom Italia TLIT.MI boss Marco Patuano, one of the main candidates to succeed Martínez. He has won Hohn’s backing, according to Spanish press reports, although not yet the board’s. The 58-year-old Italian knows Cellnex inside out: he chaired it in 2018 and 2019 after the Benetton family’s holding company Edizione acquired a 29.9% stake.
Still, Cellnex’s swollen balance sheet also requires a sharp knife. Having run Telecom Italia between 2013 and 2016, when he carved out the former monopoly’s mobile tower business INWIT, Patuano is used to heavy debt loads. Yet Telecom Italia’s 27 billion euros of net debt hardly moved when he was at the helm.
Whoever wields the axe, there’s an argument for haste. The likes of Brookfield and KKR KKR.N are hunting for deals now, not in 2030. The sooner a new CEO can conduct a portfolio review, the easier it will be to flip assets to deep-pocketed private equity funds.
But a strategic trim won’t be easy. The new boss also needs to shoulder costly infrastructure investment bills. Pruning a sprawling portfolio without affecting growth in key continental European markets such as Spain, France and Italy will be tricky. If he or she can overcome boardroom inertia, a healthier Cellnex could buy itself a longer life. If not, the private equity funds fuelling the telco sector’s Darwinian feeding frenzy may start wondering about a breakup.
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CONTEXT NEWS
Spanish mobile tower company Cellnex Telecom on March 27 named Anne Bouverot as non-executive chair, replacing Bertrand Kan. Kan joined Cellnex’s board in 2015 and has been non-executive chair since 2021. He will continue as an independent board member, the company said.
Activist hedge fund manager Chris Hohn said on March 23 that it had concerns over the “poor corporate governance” of Cellnex, particularly surrounding the replacement of Tobias Martínez Gimeno, who stepped down as chief executive in January. Hohn’s fund TCI asked for the removal of three board members at Cellnex in order to speed up the appointment of a new leader. TCI, which owns 3% of Cellnex’s share capital and a further 6% in derivatives, also asked for its own representative Jonathan Amouyal to be appointed as a board director.
Spanish newspaper Expansión reported on March 25 that TCI wanted to remove three board members who tried to block a proposal to name a new CEO. It said former Telecom Italia Chief Executive Marco Patuano was the leading candidate for the post.
Towering infernohttps://tmsnrt.rs/3ZjbzE8
Editing by George Hay and Oliver Taslic
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