Muddy Waters LLC Founder Carson Block joined Bloomberg Television’s Erik Schatzker and Sara Eisen on “Market Makers” today and discussed the possible fraud of American Tower Corp (NYSE:AMT) acquisition in Brazil. Block said if the company did not know that they over-paid for the towers “that would be something else.” He went on to say, “The best-case scenario would have been you paid some money offshore when you know the sellers are Brazilian and are probably trying to evade taxes. And we did not think that is the case and the sources we have, have made that very clear.”
Additionally Block said: “We already approached the SEC. We filled out the whistle-blower form before the report went out. I am always happy to speak with regulators. I have done so on numerous occasions. I am happy to do so in this case.”
Carson Block on the number one reason he has concerns about American Tower Corp (AMT):
“Number one in our mind is the emerging markets and frontier markets business. This is really the cornerstone of the great growth story the stock tells. [Stock] has been screaming. When we got into the field and rolled up our sleeves and figure out what was going on in the emerging markets. The reality is very different than what the company tells you. It has been able to create the illusion of growth in part through this de facto lending business where it’s giving carriers money that they give right back to it as revenue. That is one of the issues. It is also the way the business is working overseas, it is not going to work as well as in the U.S., and investors don’t understand that.”
Carson Block On whether he spoke to AMT before he published his report:
“We never told them, ‘Hey, were Muddy Waters were about to publish a report’, but safe to say, we have had a number of these issues on a number of locations.”
Carson Block On the insinuation that AMT may have committed fraud:
“What we did find is in one transaction in which American Tower Corp (NYSE:AMT) claimed to of spent $585 Million buying towers in Brazil, the actual number paid for the towers was really only in the lower $300-range. A differential of about $250 Million. If the company knows that was the case and does not disclose that, that would be fraud, but if the company did not know they did not pay that much money for the towers, then that would be something else.”
Carson Block On how it is possible AMT did not know what it paid:
“You are asking me to speculate. There are a number of possibilities. You could have had a situation with employees at the local level, you could have had an issue with the sellers. Very difficult for us to say what did happen, but we know what did not happen.”
Carson Block On how they discovered the appraisal price of the Brazil tower:
“We did not go to the appraisers address. We came across the information after we have been looking at towers. Surprisingly Google Maps is quite robust in Brazil.”
Carson Block On whether it is possible AMT is not aware of the discrepancy between the purchase price and the appraisal value:
“I cannot speculate on what the company does and does not know. Clearly the company needs to investigate this… In certain situations, there is a lot potential for abuse. At a certain point it becomes a round-trip of money. As far as I know, there is nothing illegal or improper, but it’s very misleading”
Carson Block On whether he is planning on publishing financials records cited in report:
“There are links in the report. People have to dig into the footnotes and play around but these financials are publicity available. These are for the company that American Tower Corp (NYSE:AMT) acquired…We obtained those financials. We combine them and we said this does not make sense, because what they disclosed as valuation metrics of the company should have been producing more EBITDA. That is the first set of records we looked at. The other set for the Central Bank of Brazil records that show the inflows of all the money American Tower sent into the country.
So American Tower Corp (NYSE:AMT) around the time the transaction closed sent in $335 million. It has not sent in money for two years. And the sellers are Brazilian. By the way, we have spoken with multiple sources that are familiar with this transaction, including two people who understand the transaction as it closed. Putting that to the side for a moment, the best-case scenario would have been you paid some money offshore when you know the sellers are Brazilian and are probably trying to evade taxes. And we did not think that is the case and the sources we have, have made that very clear.”
Carson Block on management compensation as incentives to run a company in a conservatively:
“Management is based on part compensation growth, so what this company has done is it has added tens of thousands of Thai workers. Simultaneously in nine different emerging and frontier markets. Before the company began this $1.5 Billion in revenue. Not tiny, but not big…In many of these cases we have built our own models…. And we have run models on four of these markets, including Germany. They are not even outperforming the government long bond…”
Carson Block On AMT not being hedged in International currency exposure:
“The company readily admits that. It says it is too expensive to hedge. These currencies are extremely volatile, which is why you need to hedge. The only thing that is important for investors to understand is the company, and therefore, the shareholders are not hedge, but management is. Company targets are adjusted to X out in the currency fluctuations of the EBITA hurdles.”
Carson Block On whether he leaked any information leading up to the report given that there has been action in options market and speculation on Twitter:
“I cannot speculate as to what people knew…You are right, there was speculation. I have theories as to what happened. Stepping back, we are in somewhat of a unique situation where the market really looks to us for these impact will calls. We heard back when the Hackers were trying to get into my account. I do not know. I have theories. I assure you it was not in our interest for all these people to know.”
Carson Block On whether this is a phenomenon with other U.S. Companies:
“I know it was not covered so much in the U.S. when we shorted Olam, but it is a bit of a parallel. It was born in African and around 2008-2009 they put the pedal to the metal acquiring assets and made a lot of the same mistakes. Interesting to look at a case study, because if they cannot invest aggressively in markets that they know very well, then how can these U.S. companies who want to simultaneously enter 5 U.S. Markets in a given year, how can they do it in an address properly?”
Carson Block On whether he alerted the SEC prior to the report:
“We already approached the SEC. We filled out the whistle-blower form before the report went out. I am always happy to speak with regulators. I have done so on numerous occasions. Often at our behest. I am Happy to do so in the case.”
Carson Block on whether Muddy Waters is looking at other American Companies:
“Yes. We tend to get really focus on one company at a time, but we think there are other names out there.”
Carson Block on what took so long to release this report and when can we expect their next report:
“The reason it took so long as I had a nose job in December. I broke my nose in December and that took me out of the game for couple of month. It was a basketball injury. The next one [report] could be less than a year.”
