AT&T To Break Into Smaller Cos.
Wednesday, October 25th 2000, 12:00 am
By: News On 6
NEW YORK (AP) â€” AT&T Corp. is breaking itself into smaller companies for the third time since 1984, scrapping its vision of one-stop shopping for communications services and dismantling a telephone and cable TV empire that took three years and more than $100 billion to build.
The widely expected breakup, officially announced early Wednesday, will create four distinct entities, including an independent cable company and an independent wireless company, all operating under the AT&T brand name.
The other two businesses will be the core of a new AT&T Corp., consisting of the unit that runs the company's huge telecommunications network and serves business customers, and a separately traded subsidiary containing the shrinking consumer long-distance business.
Under the plan, shareholders of AT&T, the fourth most widely owned stock in the country, will exchange their stock for shares in each of the new businesses.
But in a move that may not sit well with AT&T's large base of individual investors who have owned the stock for decades, the company said the combined dividend paid by the four stocks is expected to be ``substantially less'' than the current annual payment of 88 cents per AT&T share. Based on AT&T's beaten-down stock price, that dividend amounts to a cash investment return of more than 3 percent per year, an unusually high yield for a major company.
AT&T's shares dropped more than 12 percent in morning trading on the New York Stock Exchange, losing $3.38 to $23.82 a share.
The restructuring plan, expected to be completed in 2002, marks a radical about-face from the guiding philosophies preached by management since the arrival of chief executive C. Michael Armstrong in late 1997.
With falling prices eating away at its core long-distance business, Armstrong embarked on a radical overhaul of the company that envisioned AT&T as a hub for telephone, television and Internet services.
The strategy included a foray back into the local phone business AT&T had left when it spun off the Baby Bells in 1984. However, Armstrong was determined that AT&T needed to acquire its own direct connections with the nation's homes and businesses rather than pay the Baby Bells to use their phone lines.
That was the reasoning that drove AT&T to plunk down stock that was then worth more than $100 billion to buy two of the nation's four largest cable TV companies, Tele-Communications Inc. and MediaOne Group.
At first, Wall Street cheered the ambitious new approach, which even included a hostile bid for MediaOne, sending AT&T's share price to record highs earlier this year.
But then it became apparent that long-distance prices were falling faster than expected, undermining AT&T's revenue projections and slowing the flow of revenue needed to upgrade the cable systems for two-way communications. Compounding matters, AT&T's promising business services unit was failing to meet its growth projections.
AT&T's stock fell like a rock over the next six months. In trading a day before Wednesday's breakup announcement, AT&T's stock slipped 44 cents a share to $27.19 on Tuesday, well off its 52-week high of $61.
In announcing the change of course, Armstrong tried to allay the fears of both investors and employees, insisting that the changes didn't amount to a contradiction of the one-stop shopping strategy.
``Each of these new companies will move faster in meeting customer needs, but they'll serve them under one of the world's most recognized and respected brands and they'll still be able to offer bundled services through inter-company agreements,'' he said in a statement.
``Employees will have better career opportunities and be even more highly motivated because they'll be working for industry-leading companies that don't have to compete internally for capital or attention. Shareowners should get the full value of their investment because investors will be better able to evaluate the financial performance of each AT&T company and compare it to its competitors.''
The breakup is the third major restructuring for the former national telephone monopoly since 1984's court-ordered breakup, when AT&T spun off its local calling operations as seven Baby Bells, several of which have since merged.
Twelve years later, in 1996, AT&T voluntarily split itself into three separate companies, spinning off its communications equipment arm and acclaimed Bell Labs research unit as Lucent Technologies Inc., and its computer division as NCR Corp.
At last count, AT&T had 163,600 employees, nearly a third of whom work in the cable ``broadband'' division. That compares with a whopping payroll of 964,000 people before the 1984 breakup, which left AT&T with 373,000 workers. In 1996, more than half of the company's 300,000 workers departed with Lucent or NCR.