Telco giant AT&T announced a restructuring recently, a monumental effort that will take until mid-2002 if not longer. As a result, shareholders in the company have time to consider their next moves, and investors generally may want to draw some lessons from the company's experience
 |
|
|||||
|
||||||
|
||||||
By
Richard McCaffery, Fool Writer/Analyst
My take on the AT&T situation is mostly of the hindsight variety. This is what happens when you overpay for risky assets, namely TCI and MediaOne, assets that required heavy future investment and would take a few years at least to start generating a return. Even if that return is reasonable, will it be adequate given the cost? This is the kind of thing Warren Buffett means when he talks about how difficult it is to allocate capital wisely, and how few CEOs do a good job of it. That doesn't mean I saw it coming. I never thought AT&T would have to panic this quickly and break up the company to try to please Wall Street, and I, too, bought into the idea of bundling services. But that's the bottom line with debt: The more you have, the less you run the show.
The lesson here is that mergers and acquisitions benefit investment bankers more than shareholders. Take the Pfizer (NYSE: PFE) acquisition of Warner-Lambert earlier this year. Both are good companies, but, in my opinion, they have little chance of living up to expectations based on the size of the new company.
Chris Rugaber, Motley Fool News Writer
For better or worse, AT&T shareholders have plenty of time to think about what to do as the company's restructuring proceeds. By mid-2002, current shareholders should have stock in all four units: AT&T Business, which will retain the AT&T brand and ticker symbol, and will license the name to the other divisions; AT&T Consumer, a tracking stock issued by AT&T Business; AT&T Broadband, which will include the company's cable business and the Excite@Home (Nasdaq: ATHM) high-speed Internet subsidiary; and AT&T Wireless (NYSE: AWE), which currently trades as a tracking stock and will be spun off as an asset-based independent company.
First, if you're unfamiliar with what a tracking stock is, be sure to check out our articles from last September and earlier this year for some explanations.
Next, investors should consider whether they want to take advantage of the upcoming exchange offer for AT&T Wireless shares. While the details have yet to be worked out, the company plans to let shareholders exchange AT&T shares for stock in AT&T Wireless (requests will be prorated if shareholders try to exchange more than $10 billion worth of stock). This will enable the company to reduce outstanding shares in AT&T, increasing future earnings per share, and gives shareholders an opportunity to acquire a piece of the company's only high-growth division. AT&T plans to file the necessary paperwork for the exchange with the SEC this quarter, and expects to initiate the exchange early next year.
Finally, AT&T shareholders should pay close attention as the company makes critical decisions regarding the capital structure of each new unit. America's largest cable company and leading (though declining) long-distance provider has over $210 billion in assets, about quadruple what the company listed on its balance sheet two years ago, and $61 billion in debt. How all this is apportioned will obviously impact the performance of each unit.
For those who are not shareholders, the whole process will certainly be interesting to watch!
RSS Headlines
Fool UK
