Cellnex loses its ‘alma mater’ after pressure over the change of roadmap

When Tobías Martínez sat in front of the analysts during the Cellnex results presentation in November, the discourse was clear to him. He repeated on multiple occasions that the main objective had now changed: the frenzy of recent years was giving way to organic growth, without large expenditures for asset purchases to operate them as an independent ‘turkey’, and the improvement of the debt ‘rating’ to guarantee access to the financing market. The party is over. It was a return to ‘winter quarters’ for which analysts and shareholders had lobbied. Two months after that turnaround, the Catalan executive throws in the towel. The ‘alma mater’ of the largest independent telecommunications infrastructure manager in Europe is leaving. And now a manager is being sought for a very different phase.

In 2015, two months before its stock market launch, Cellnex’s buying career began. After two minor acquisitions of assets from Telefónica and Yoigo, it landed in Italy to take over 90% of the shares of the Italian Wind division. That signature in the Martinez sales contract was going to be repeated up to 40 times. Incorporate removing assets from the checkbook to operate them with long-term contracts with telecommunications companies. Hucthison’s from Hong Kong is the icing on the cake. In 2022, the two outstanding operations that would remain in the European market were going to be carried out: Deutsche Telekom and Vantage Towers (Vodafone). Neither of them came out, because venture capital -with ‘mega funds’ ready to invest- burst onto the scene.

After the first ‘defeat’ in Germany, Tobías Martínez appeared to resist. “In the short term, the strategy is more of consolidation in existing markets. But in two or three years, who knows what the market structure will be?” He left open the hope of a really close ‘return match’ that would allow him to keep alive the flame of the active ‘M & A’ machine. The pressure from some shareholders increased to avoid an operation of this caliber and put the ‘conservative mode’ in management. The investors who really move the market were clear: not entering the German market ended in increases in the stock market. The race for Vantage Towers was almost as a mere spectator on the part of the ‘torrera’ and it was there when Martínez and his team agreed to change the script.

The CEO resigned today began his speech just a few months after that ‘Who Knows?’ with a clear message: “The current environment creates a new factor to take into account. We have listened to the market.” The script was already changed. And although Martínez has been a staunch defender of the growth strategy, he did not offer any clues about his decision to leave it. It was taken for granted that he would continue to lead the company in this new stage. He had a contract until December 2024. That is, two more years. Precisely that period of which he spoke for the return to the market of the assets of Deutsche Telekom or Vantage. The surprise among analysts and investors has been evident. The shares have dropped 2.45% of their value during the session on Wednesday.

In case of resignation during the term of the contract, the CEO is entitled to 2.6 million euros of compensation, including his ‘non-compete’ clause

In this time of strong wear due to the rapid evolution of the company, a clear internal successor had not been promoted either, a sort of ‘dolphin’. Álex Mestre is his right hand and ‘number 2’ and during this time he has assumed, like the rest of the management team, a certain role. But he has not emerged as the official heir. In the 2021 corporate governance report, the company referred to the fact that in January of that year the Appointments Committee asked the specialized consultancy Korn Ferry to share the analysis carried out on the contingency plan for external candidates who could replace Martínez.

The CEO, as reflected in the remuneration report, touched a total salary of 5 million compared to 1.3 million in 2017, which reflects the strong growth in the value of the company reflected in the long-term incentives received from the different plans approved. In the event of resignation during the term of the contract, he receives 2 times his annual fixed salary (1.3 million euros). This import includes compensation for a two-year non-compete commitment.

In all this time of the CEO’s mandate, the hard core of shareholders has been changing. The Benettons came to touch 30%. And in that year 2018, Martínez himself demanded that Criteria Caixa increase his participation in the company to have reference Spanish partners. There, the position of the investment arm of Caixabank -which has achieved juicy capital gains- was 5%. Today it stands at 4.7% after the dilution in one of the ‘mega-increases’ of capital carried out, which places it as the seventh shareholder. Despite this, he will have a lot to say in the next appointment of Martínez’s successor. The Italians have 8.5%, while the sovereign wealth fund of Singapore (GIC) and the activist Chris Hohn hold 7% each.

Criteria Caixa is the first Spanish shareholder in the “hard core” of the tower and will have a lot to say in the appointment of the new CEO

The new challenges

The new CEO who arrives in June will have many challenges ahead of him in the ‘new Cellnex’. The main one has to do with debt management. The strong growth of recent years through acquisitions has implied capturing more than 20,000 million euros of liabilities -today it is close to 7 times the Ebitda-. This has put the balance to the test. The Barcelona-based company has committed to attaining rating agency S&P’s BBB- investment grade rating – an improvement from its current BB+ – and maintaining its current rating on Fitch. This will imply cost optimization and greater financial discipline, which would lead to a positive cash flow in the medium term, for a potential payment of more generous dividends.

On the operational side, in a scenario with very selective and ‘opportunistic’ purchases, the challenge will lie in other areas. On the one hand, dealing with inflation and how it can affect contracts and their margins. On the other, the management of the more than 7,000 million investment in towers and new infrastructure committed to its clients. In addition, there is business diversification with what they have come to call the ‘increased tower’, which goes far beyond site maintenance. And, finally, the new manager will have to address other contract renewals. Those that were subscribed with Telefónica was a first litmus test.

All this will have to be dealt with in a market that has severely punished the actions of both Cellnex itself and other market operators such as American Tower. This macroeconomic scenario, with higher interest rates and rising inflation, has generated a certain amount of distrust towards a model like that of the ‘torrera’. Martinez’s successor will have to convince everyone that a new roadmap without growth makes explosive and logical sense going forward.

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