AT&T: 4 Companies Better Than One

It's splitsville time again at AT&T and some shareholders aren't happy.

AT&T plans to divide, by the year 2002, into four different companies: one for wireless, one for cable broadband services, one for business telephone services and another for consumer long distance telephone services.

The parent company will retain the business services unit, the AT&T network and the New York Stock Exchange symbol, T, while the company brand will be licensed to all four entities.

The combined dividend of the four new companies to be created is expected to be "substantially less" than the current annual payment of 88 cents per share.

If you've got AT&T bonds, go ahead and smile along with C. Michael Armstrong, CEO of the phone giant, because the phone company is also going to pay off some debt.

Bond values rose shortly after the announcement, while AT&T stock slid in afternoon trading.

Armstrong Wednesday formally disclosed the company's plans to create four distinct entities, including an independent cable company and an independent wireless company, all operating under the AT&T brand name.

The company's huge $55 billion debt load will be apportioned between the four units, though executives did not provide details on exactly how. They suggested that the bulk of it would be attached to the business and broadband units.

The decision to send AT&T's assets into four corners is another landmark in the company's history and is seen by some as an end to what was a strategy of building a one-stop-shopping empire of communications services that took three years and more than $100 billion to build.

Making the announcement, Armstrong tried to allay the fears of both investors and employees, suggesting that the old strategy is still in place, even though it will be pursued by four companies.

"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," said Armstrong.

"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," said Armstrong.

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.

AT&T's current dividend, in relationship to the company's stock price, amounts to a cash investment return of more than 3 percent per year, an unusually high yield for a major company.

Investors got more news they didn't like when AT&T warned separately that it would earn 29 to 33 cents per share in the fourth quarter ended Dec. 31. Analysts surveyed by First Call/Thomson Financial had been expecting 36 cents per share.

CBS MarketWatch reports that by dividing into four pieces, AT& hopes investors will take a closer look at each business and value it accordingly. Backers of the split believe the company, in its current form, isn't being valued for its true worth and has been underestimated because of AT&T's decline in what was its mainstay: the consumer long distance telephone business.

"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," said Armstrong, in explaining the decision.

Some investors are nonetheless skeptical that a breakup will boost AT&T in the long term. Among other things, there has been sluggish growth in both the cable business and in the business services segment that AT&T plans to retain.

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.

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