Elliott Management is pushing Crown Castle to make changes in its fiber business, and it sets up an interesting opportunity for shareholders in the communications infrastructure provider, CNBC's Jim Cramer said Monday.
Elliott, the hedge fund run by Paul Singer with a billion dollars' worth of interest in Crown, last week voiced its displeasure with the company's return on investment in a letter calling for changes to the fiber strategy.
"Either Crown Castle gives Elliott what they want and you get a leaner, meaner cell tower play with a high dividend, or Crown Castle ups its game to fend off the activists," the "Mad Money" host said. "Either way, this already good story can get even better as Elliott's work, as always, is top-notch and begs to be listened to."
While activist investors tend to buy up stock in laggards with intentions of turning them around and unlocking value, Elliot's move on Crown Castle is a different story, Cramer said.
"Crown Castle is a great company and Elliott recognizes that, but they still want management to change their strategy," Cramer said.
"Still, this whole thing was pretty gentlemanly by Elliott's standards. They're not calling for the CEO's head, they're not telling the company to put itself up for sale, they just want a course correction."
Crown Castle has outperformed the market, but the stock has trailed the aforementioned cell tower plays. Elliott concluded that's because the company has spent too much on fiber – to the tune of $16 billion on fiber assets – and the activist fund wants to put a return-based hurdle rate for capital spending projects in that segment. Based on Elliott's calculations, Crown's fiber investments are worth just $11 billion, the hedge fund said in its open letter entitled "Reclaiming the Crown Plan."
Crown executives responded to Elliott's demand for changes in its own press release defending its investments to capitalize on surging demand for mobile data and the budding 5G market. The company wrote it remains "confident in our ability to generate compelling value for our shareholders, including through our goal of growing our dividend per share 7% to 8% per year."
"I think Crown Castle and Elliott need to talk this thing out. Elliott's right about focusing on towers, and it's so lucrative it's a wonder that Crown Castle just doesn't stick with those," Cramer said.
"However this plays out … I think it's good for you, the shareholders. Elliott's doing what's right for its partners. That could be great news for you, too."