|
AT&T board OKs split
|
 |
October 24, 2000: 11:10 p.m. ET
Report: phone firm preliminarily OKs restructuring, but not four-way split
|
NEW YORK (CNNfn) - After months of deliberation, AT&T Corp.'s board of directors has approved steps which will lead to an eventual breakup of the No. 1 U.S. long-distance telephone company, according to a published report.
The Wall Street Journal's Interactive Edition reported Tuesday the board voted to approve a proposal involving completely spinning off its wireless business and creating tracking stocks for its cable and consumer long distance businesses. A formal announcement of its plans is expected when AT&T releases its earnings Wednesday morning.
But contrary to previous reports the plan will not split AT&T's (T: Research, Estimates) consumer and business units into separate companies, the Journal said.
Published reports have offered various accounts as to which course the company plans to take. The New York Times and Washington Post reported Tuesday that the company's board had already settled on a four-way break-up, which included creating a new tracking stock for its consumer long-distance business within the next two years, spinning off its cable television and wireless units, and leaving its business services network under the current company shell.
But the Journal said Tuesday the company is unable to spin off its cable unit for two years because of tax reasons and will instead embark on a "reverse spin off." According to the report, the company will issue tracking stocks for the cable business and its consumer long distance business, but the consumer unit will remain tied to AT&T's business services unit.
The consumer and business services entity will keep the AT&T name, the Journal said.
AT&T, which is slated to announce earnings on Wednesday morning, declined to comment.
 The decision comes as Chairman C. Michael Armstrong Armstrong and AT&T's board attempt to find ways to resuscitate the company's stock price, which has tumbled this year. It now trades at around half what it was a year ago, partly because of falling prices in the long-distance telephone business.
It also comes as several major U.S. telecom carriers, including AT&T rival WorldCom Inc., look for ways to restructure their companies to better respond to growing competition from rivals and unlock the value of their high-growing businesses, analysts said Tuesday.
WorldCom (WCOM: Research, Estimates), the nation's second-largest long-distance carrier behind AT&T, will also announce plans to issue a tracking stock of its consumer and wholesale long-distance units next week, sources said.
Driving share value the key
For AT&T, the critical component is unlocking the value of its various high-growth business units, including its cable operation, a key part of AT&T broadband, which could be worth as much as $20 per share, said Drake Johnstone, an analyst with Davenport & Co.
Meanwhile, AT&T business services, which competes with WorldCom and Qwest Communications (Q: Research, Estimates) to build faster and bigger communications networks, has posted mixed results of late. The unit's long-distance voice services have slowed down while data communications has surged.
AT&T forecast third-quarter revenue growth of 6 percent for the division, but Johnstone expects them to fall short of this target, posting only 4 percent growth.
"If they demonstrate improving revenue growth, they could get $20 a share," Johnstone said.
AT&T's consumer long-distance unit, a mature business with 50 to 60 percent market share, has also seen its revenue slump. The unit generates nearly $8 billion in cash, said analyst Pat Comack, of Guzman & Co.
"Clearly in the consumer business you are seeing a shift from wireline to wireless," said analyst Ramkrishna Kasargod, of Morgan Keegan & Co.
In April, AT&T issued a tracking stock for its wireless division, AT&T Wireless Group (AWE: Research, Estimates), the third-largest wireless group in the United States. Now the company is considering converting the tracking stock into a real company and selling the rest -- 85 percent -- that it still owns, reports said.
"I would love to see AT&T break up," said Guzman's Comack. "It's a great move and would create value for the shareholders."
AT&T is fighting the decline of consumer long distance and the sluggish growth of business services, Comack said.
"That business could be extinct in 10 years," he added.
But other analysts weren't so sure. Norman Fuchs, a telecom analyst with M.H. Meyerson, told CNNfn that the company was showing a lack of patience by not waiting to see the results of the major investments it had made in all aspects of its business the last three years. (438K WAV) (438K AIFF)
"So the question is at the end of the day: Will you drive enough value out of a split-up?" he said. "I don't think we've given the process enough time."
The long-distance slump
Reports of AT&T's four-way split follows news of WorldCom's plans to issue a tracking stock of its consumer and wholesale long-distance units. Still reeling from its $117.7 billion failed merger with Sprint, WorldCom is also considering plans to shore up its shares. The communications company has seen its stock slump, which is currently trading at less than half its 52-week high of $61.33.
In July, WorldCom CEO Bernard Ebbers disclosed he was considering restructuring the company. Ebbers said he was looking at issuing a tracking stock for the consumer and wholesale long-distance units as well as selling the segments or spinning them off.
WorldCom will announce earnings on Thursday, but restructuring plans are expected next week, sources said.
 AT&T and WorldCom have failed to respond well to competitors such as Verizon Wireless and SBC Communications Inc (SBC: Research, Estimates) in the long-distance market, said Davenport's Johnstone. AT&T, WorldCom and Sprint Corp. (FON: Research, Estimates) currently dominate the long-distance industry but are failing to match the low prices offered by new competitors, he said.
"I am most surprised by the lack of competitive response by AT&T and WorldCom," Johnstone said. "If AT&T had lowered rates they would have stable revenue instead of double-digit declines."
He values AT&T's consumer long distance at less than $10 billion, or $3 per AT&T share. "I don't see a tracking stock getting a decent valuation."
The four-way split is a way of letting investors value the separate companies without the slow-growing businesses. The individual businesses are worth more separately than combined, said Morgan Keegan's Kasargod.
"When you separate it out, investors can see what each piece is worth," Kasargod said.
Both WorldCom and AT&T are indicating that they are focusing more on the business market, he said.
"Both are trying to position themselves in such a way as to value them by different revenue streams," he said.
On Tuesday, AT&T lost 75 cents to $26.88, Sprint gained $1.69 to $27.06, WorldCom gained 19 cents to $26.94 and SBC lost 25 cents to $53.88. 
|
|
|
|
|
|
AT&T
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
