The massive AT&T corporation will split up into four smaller, publicly traded companies by 2002, the telecommunications giant confirmed today, a move that essentially dismantles three years of acquisitions by the largest U.S. long-distance telephone and cable television company.
The announcement is a bold restructuring move by the corporation, and the first since creating the “baby bells” in 1984. The four new companies will be AT&T Wireless, AT&T Broadband, AT&T Business and AT&T Consumer.
Two of the four new companies will represent the core of a new AT&T — the business 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.
As separate stocks, investors will be able to track the growth or decline of each unit instead of trying to value the entire conglomerate with its disparate parts.
Meanwhile, long-distance customers will likely see little impact from AT&T’s restructuring, analysts said. The regional Baby Bell phone companies probably will not follow AT&T’s lead in restructuring since they lacked its range of services, the analysts added.
Wall Street Reacts Coolly
On the New York Stock Exchange, AT&T, which beat third-quarter earnings expectations today, finished down $3.63, or 13.3 percent, at $23.56, after stock downgrades from several Wall Street analysts, including Salomon Smith Barney’s Jack Grubman, one of Wall Street’s most influential analysts. He downgraded AT&T’s stock to “neutral” from “outperform,” saying, “We believe the business is melting down.”
And Grubman is not the only analyst reacting less than enthusiastically to the restructuring plan.
“I think it’s the beginning of the end of an icon. It’s a sad day in corporate history. It’s the surrender to Wall Street, which was foolishly looking for near-term results and stock gains on a five- to 10-year turnaround project,” said Gartner Group analyst Ken McGee.
“They are going to have to prove that this restructuring is going to put the company on the right track,” said Stanley Nabi, vice chairman at DLJ Asset Management, with $35 billion under management. “When a company has an operation that is losing money, and they sell it, they write of it off. Here, all they are doing is reshuffling the deck.”
ABN Amro analyst Kevin Roe said the move would “make it easier for the Street to value the company, but I still believe operational results are more important.”
A union also is calling AT&T’s reorganization plan flawed.
The Communications Workers of America union said the new plan won’t fix the operational problems at the company. “AT&T has operational problems which cannot be fixed with financial restructuring,” said the union, which represents about 35,000 AT&T employees, or about 20 percent of the company’s workforce.
CEO Armstrong Defends Move
In announcing the change of course, AT&T Chairman C. Michael Armstrong tried to allay fears of both investors and employees, insisting 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.