The Deal: American Tower Fires Back at Muddy Waters

NEW YORK ( TheStreet) - American Tower ( AMT)appears to have allayed some concerns following a report from Muddy Waters Research, the activist short-sellers, that blasted the company for issues ranging from the accounting of a Brazilian acquisition to the viability of its business as well as share sales by company executives.

Shares of the Boston wireless infrastructure company gained 0.8% on Thursday to close at $74.44 nearly even with its close of $74.71 on Tuesday, the day before Muddy Waters published its report.

Analysts questioned the Muddy Waters allegations about American Tower's accounting, and suggested the research firm had overplayed its concerns about the the sector.

"The piece seems filled with unfounded assertions, factually incorrect data and conjecture," Morningstar Inc. analyst Imari Love said of the 188 page Muddy Waters report.

American Tower rebutted one of the most serious accusations, that it had misreported the price of a Brazilian tower acquisition, in a filing with the Securities and Exchange Commission filing late Wednesday. And company CEO James Taiclet addressed some of the issues in an appearance on CNBC's Mad Money with Jim Cramer, who is a founder and director of TheStreet Inc., The Deal's parent. On th show, Taiclet called the "ill-timed" and "completely wrong."

Muddy Waters asserts that there is a $250 million gap between the price that American Tower says it paid for 666 wireless towers in Brazil, and the amount that the company actually paid.

"If AMT is aware of this discrepancy," the firm stated, "it would amount to fraud."

American Tower filed an 8k late Wednesday outlining the sources of financing for the deal, which it says are listed in documents from the seller. There are intercompany loans of BRL 554 million ($335 million) and BRL303 million ($184 million) in equity contributions, both of which the company said are registered with the Central Bank of Brazil. The rest came from cash generated by the business.

Muddy Waters published a Google street view photo of the headquarters for the accounting firm that American Tower allegedly used for the Brazilian acquisition, which is in a run-down building in an apparently residential neighborhood.

"Would YOU hire this company to value your US$585mm acquisition?" the firm asked.

Evercore Partners analyst Jonathan Schildkrout wrote that American Tower said that the small, local firm was hired only "to stamp the transaction for the government," and that KPMG actually handled the deal. Jennifer Fritzsche of Wells Fargo Securities LLC wrote that the company likely needed approval from counsel to make the disclosure, given that it is in a quiet period ahead of its July 31 earnings report.

"The fact that AMT came out swinging hard here and given the company's strong track record, we believe this concern/worry is overdone," she wrote.

Kevin Smithen of Macquarie Capital described the concerns as "noise" in a report, and suggested that questions about a potential tower purchase may also weigh on the stock.

For example, If AT&T Inc. shopped its towers to bankroll its acquisition of Leap Wireless International Inc. or purchases in Europe, Smithen suggested that the price would come to $3.9 billion. Even at $5 billion, or 17.5 Ebitda, a purchase funded 70% by debt could be accretive to AMT. Muddy Waters listed a number of other concerns.

The firm said CEO Taiclet has sold 90% of the stock he has received from options. And the REIT will have difficulty repatriating cash, the report charges. Muddy Waters also said that American Tower has not acknowledge the potential disruption from technologies such as Wi-Fi and small cell networks that are used to increase capacity in urban and high-traffic areas.

"It is difficult to overstate the threat Wi-Fi and small cell pose to AMT's economic model," Muddy Waters stated. Morningstar's Love called the assertion "really laughable."

"We, along with sources we've spoken to in the industry, don't believe the assertion made in that report are substantiated and the market has to date treated it as a non-issue," said Love, whom Starmine and The Financial Times named the top wireless stock picker of 2012.

American Tower has addressed only the most significant of the charges in its 8k. A company representative did not respond to a query. There is plenty to discuss at its July 31 earnings call.

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