Crown Castle investor calls for leadership change and fibre sale

The passive infrastructure specialist issued a very restrained statement in response to what can only be described as a scathing attack from Elliott Investment Management covering everything from the company's underperformance compared with its peers to a perceived wide-ranging failure of strategy.

"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," Crown Castle said.

"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," it added.

Elliott, which notes that it has an investment of approximately $2 billion in Crown Castle, is, to put it mildly, not so confident.

"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's letter reads. "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. We believe shareholders deserve better."

The letter accompanies Elliott's campaign for wholesale change at the infrastructure firm, which it has wittily dubbed Restoring the Castle. In it, Elliott outlines its recommendations, which include a new executive leadership team and board of directors.

"It is clear that this leadership team has destroyed billions of dollars of value through its capital-allocation decisions. Even more troubling, Crown Castle has demonstrated minimal self-reflection on whether its strategy is working and has displayed little regard for conflicting data and analysis," Elliott said.

It also had plenty to say on the subjects of corporate governance and optimised incentive plans. But more interesting than that, it is calling for a strategic and operating review of Crown Castle's fibre business, with a view to a possible sale.

The firm has invested US$19 billion in its fibre strategy which, after a decade, is yielding a 6% return on invested capital (ROIC), a sum Elliott describes as "paltry." Further, that ROIC figure falls to 4% for the period since Elliott last took aim at Crown Castle in early 2020, then also complaining that its fibre strategy was detracting from shareholder returns.

"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," Elliott said. It puts the value of the fibre business at around the $1 billion mark, thereby claiming Crown Castle has effectively destroyed around $18 billion of value.

"All aspects of the fiber strategy must be re-evaluated, including whether Crown Castle is the best owner of its fiber business," it said.

It's hard to argue that Crown Castle's performance of late has been underwhelming. In July it revised down its full-year revenue and earnings outlook on the back of reduced network spending from operator customers and subsequently unveiled a restructuring plan that included culling 15% of its workforce.

Clearly that was not enough to appease Elliott. The investor plans to share its alternative strategy with other shareholders at Crown Castle's 2024 AGM. It has not yet published a date for that meeting, but this year's took place in May, so we could have a bit of a wait. In the meantime, let's see what – if anything – Crown Castle does in response.