Trouble at AT&T

— A few months ago I got enamored with AT&T. I thought that the sum of the parts was worth more than the company was trading and I figured that the businesses were stabilizing. I talked with people at the company and got quite comfortable with the story. I figured the stock had been cut in half and the risk had been taken out of the stock.

I was wrong. Dead wrong. As wrong as I can recall ever being. Soon after, we blew it out and I ate a little crow — OK, lots of crow — on the site. It was painful. What was really a shame was that I should have known better. I hate it when my companies load the boat up with debt.

I have always hated debt. Debt is the enemy of good performance.

The Downward Spiral And AT&T has a ton of debt. It has a mountain of debt. It has more debt than most countries. Now it wants to break itself up. To which I say: Good luck. You can’t. You have too much debt, AT&T, and you need to keep the company together to satisfy the bond holders, who now must be appeased lest your ratings be slashed and slashed again.

I was stupid and I am really angry at myself that I bought the company’s line about how everything was OK. I feel like one of those analysts who gets bagged by management and now knows he should have known better.

It was the debt, stupid. The debt was too big and I should have known it. As I read about Liberty Media breaking loose (see sidebar below), I can only note the horrid irony of it all. AT&T used to have a great balance sheet. Then it got the cable bug. Hey, the cable rap was always, “The debt coverage will always be OK because it is a monopoly.”

AT&T bought Malone’s company. It paid top dollar. It then bought a lot of other companies. It paid top dollar. It did so because it wanted to be your broadband company. Now that dream is smashed. AT&T doesn’t have enough money to buy all that nifty new equipment it needs and still pay down all of that debt. Malone’s taking his Liberty baby and going home. After he got this once-great company hooked on debt.

What a hoot! And I would be having a good laugh, if it hadn’t cost us so much money. And made us look so bad.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Cisco. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

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