Vinson & Elkins have been advising on tower transactions for decades. Previously they represented American Tower, and more recently they represented Crown Castle during their push into Europe, when a flurry or potential tower transactions was triggered by MNOs’ need to raise capital for their 3G licenses. When the emerging market tower industry started to become active over the last decade, Vinson & Elkins drew on their relationship with Chuck Green from his time at Crown Castle, and some work they had done for Helios Investment Partners, becoming a natural choice to represent Helios Towers Africa in their pioneering transactions. Keen to become more active outside Europe, Africa and North America, Vinson & Elkins are sponsoring TowerXchange Meetups for the Americas and Asia.
TowerXchange: Structuring joint ventures is a complex process, but what are the unique complexities of tower JVs?
Jeffrey Eldredge, Partner, Vinson & Elkins:
The biggest concern is the tension between Mobile Network Operator’s (MNO) desire to maintain some form of control over what they view as critical assets to their business and operation, and the necessity to retain only a minority interest in the joint venture and make sure the towerco is independent from the MNO and can be marketed as such to potential co-locators.
There can be a tendency for the MNO’s operational control provisions to bleed into the Joint Venture Agreement (JVA), whereas I feel they belong in the Master Lease Agreement (MLA). We take the view that the MLA defines the commercial relationship between the mobile network operator and the towerco, so matters pertaining to the provision of tower space and rights belong in MLA not in the JVA.
If you start putting contractual and operational issues into the JVA, those matters become known when other operators participate in the joint venture, and it can also lead to issues about who controls the business and who is responsible for commercial decisions, such as leasing and pricing. For the independent tower company business model to work effectively, it is key that the towerco retains control, not the anchor tenant MNOs, otherwise competitive MNOs may be disinclined to co-locate.
If you allow operational matters to bleed into the JVA, you can muddle the business model, and it makes it tougher to sell the towerco as independent.
TowerXchange: What’s in it for the seller to structure a joint venture in this manner?
Jeffrey Eldredge, Partner, Vinson & Elkins:
The legacy tower owners, or anchor tenants, can still secure certain rights that are superior to the rights of co-locators, but they need to relinquish control rights over the assets.
Given the rationale for MNOs to retain a stake and to participate in the growth and economic benefits of co-location on joint venture-owned towers, there are greater co-location opportunities if those towers are no longer seen as owned and controlled by the MNO.
TowerXchange: Vinson & Elkins recently advised Helios Towers Africa on the creation of a joint venture towerco in Tanzania, bringing together assets previously acquired from Millicom-Tigo, together with additional assets acquired from Vodacom Tanzania. What insights can you share from structuring that joint venture?
Jeffrey Eldredge, Partner, Vinson & Elkins:
Structuring a joint venture towerco becomes more difficult as you bring additional operators into the joint venture, but that should not discourage MNOs from considering joint venture transaction structures when selling their towers.
Again, the priority has to be to balance the control rights of the parties coming together in the joint venture. If you give one MNO control rights, how do you balance that as subsequent MNOs participate in the joint venture? The joint venture has to be run by the towerco, which in most cases means the towerco needs to retain at least 51% equity.
Structuring a joint venture towerco becomes more difficult as you bring additional operators into the joint venture, but that should not discourage MNOs from considering joint venture transaction structures when selling their towers
So once again, the lesson learned is that if you agree on rights to do with the operation of towers, or even a limited right of veto, put it in MLA, don’t let it bleed into the governance of the joint venture company.
The reality is that when you bring in new party, they have a different world view and different priorities. You can’t just impose an existing JVA on them, so there were inevitably some intensive three-way negotiations.
A reminder of the details of the Helios Towers Africa deals with Millicom and Vodacom Tanzania
2010: Helios Towers Africa acquired an estimated 729 towers from Millicom Tigo for a purchase price of US$60mn. The transaction was structured as a joint venture with Helios Towers Africa receiving 60% equity and Millicom 40% equity in the joint venture towerco, Helios Towers Tanzania.
2013: Helios Towers Africa acquired an estimated 1,149 towers from Vodacom Tanzania. The assets were rolled into the joint venture towerco Helios Towers Tanzania, in which Helios Towers Africa retained a controlling interest and 51% equity, with 24.5% equity each retained by Millicom-Tigo and Vodacom Tanzania.
TowerXchange: What were the main transferrable lessons learned from that three-way negotiation?
Jeffrey Eldredge, Partner, Vinson & Elkins:
The ease of completing joint venture tower transactions is largely defined by the extent to which you can keep the JVA and MLA separate. With the help of our towerco client, we were able to work each party’s unique needs into their MLA. Structuring a JVA is tough enough without a bunch of operational clauses clouding the picture!
My advice to MNOs considering participating in joint venture towercos is to work hard to figure out what you need and how to protect yourself in the MLA. The MLA is your hook into the towers, through which you protect your operational needs. In contrast, consider the joint venture as an investment vehicle, and concentrate on protecting your investment in the JVA.
The MLA will be around for the full term of the leaseback, sometimes 20 years or more, while the joint venture company in many cases may substantially restructured during refinancing or during a strategic sale. So it doesn’t make sense to put operational clauses in the JVA when the MLA will likely outlast it.
TowerXchange: How is the management of competitively sensitive information governed by the joint venture structure?
Jeffrey Eldredge, Partner, Vinson & Elkins:
The most competitively sensitive information is the lease rate paid by each party. Under ordinary circumstances, you would share such fundamental revenue information with board members, which may include competitive MNOs. So if towercos are renegotiating a contract and lease rate with one MNO tenant, there may be provisions to exclude the board members from other MNOs.
With many towercos securing build-to-suit programmes, sensitive information around network coverage maps and rollout plans are similarly dealt with.
Forming a joint venture towerco is complicated, and it takes a lot of work, but if you work with people who know how do it, then win-win-win deals can be agreed. But I would urge MNO’s to let go of control of the joint venture itself, and to protect their operational interests in the MLA. Separate the JVA from the MLA, otherwise it gets messy
TowerXchange: Finally, why should operators and towercos not be scared of structuring JVs?
Jeffrey Eldredge, Partner, Vinson & Elkins:
If MNOs are comfortable entering into MLAs concerning co-locating on independent towerco sites or bi-lateral swaps with other MNOs, then there’s no reason to be afraid of participating in a more expansive joint venture towerco.
The economic benefits of selling towers are obvious – you take a non-core asset off your balance sheet and release cash and/or negotiate a good lease rate opex, and you remove the operational burden of owning and operating the passive network. If MNOs retain an interest by forming a joint venture, they can benefit from the enhanced value of the towers in the hands of someone who can benefit from the co-location opportunity. Forming a joint venture is a way of MNOs retaining an interest in the success of the towerco, which is in everybody’s interests.
Forming a joint venture towerco is complicated, and it takes a lot of work, but if you work with people who know how do it, then win-win-win deals can be agreed. But I would urge MNO’s to let go of control of the joint venture itself, and to protect their operational interests in the MLA. Separate the JVA from the MLA, otherwise it gets messy.
