Huge Twist in Cell Tower Wars: Tax Accounting Issues from the SEC (AMT, CCI, SBAC)

American Tower Corporation (NYSE: AMT) and Crown Castle International Corp. (NYSE: CCI) are the two major players in the world of cellphone towers.  Go ahead and include 4G too.  This morning is not looking very promising for American Tower after it filed an 8-K disclosure with the SEC that disclosed an SEC inquiry.  We would have normally issued “The Mr. Dumas Accounting Award” to American Tower but the disclosure offers such little disclosure and detail that there is no way to know what it really means.

What is odd is how small the disclosure was.  American Tower stated:

• On June 2, 2011, American Tower Corporation received a subpoena from the United States Securities and Exchange Commission requesting certain documents from 2007 through the present, including in particular documents related to the Company’s tax accounting and reporting. The Company intends to cooperate fully with the SEC with respect to its request.

Shares of American Tower are down 6.2% at $51.02 on more than 1 million shares in less than the first five minutes of trading.  The 52-week trading range is $41.26 to $56.84 and the consensus Thomson Reuters price target is just above $60.00.  Analysts are likely to be out with downgrades or with “temporary exceptions” in the research coverage.  Unfortunately, the time frame is wide enough and the disclosure is vague enough that no one outside of the company will yet be able to make determinations or opinions.

Shares of rival Crown Castle are down a bit in sympathy with a drop of just over 1.5% at $40.95. The smaller player is SBA Communications Corp. (NASDAQ: SBAC) and its shares are down 1.5% at $38.19.  American Tower is now worth about $20 billion after the haircut in its market cap, while Crown Castle’s market cap is almost $12 billion.  SBA Communications has a market cap of only about $4 billion.

There is an old rule of thumb that many investors heed.  When accounting irregularities or large accounting questions arise, look for opportunity elsewhere.  American Tower shares were down over 8% pre-market… Even after about 20 years of reading news releases and financial statements, it is amazing how so few words can have such a big impact.

JON C. OGG