AT&T spent a decade buying things. Now it’s house cleaning.
AT&T shed light on its pending spin-off from WarnerMedia for
Discovery last week – a big step towards the end of a decade of misguided mergers and acquisitions. AT&T has spent years doling out billions of dollars in deals, including $66 billion for DirecTV in 2015 and $106 billion for Time Warner in 2018. These have taken the 145-year-old phone company into new industries more cyclical, and at one time made it the most indebted company in the United States
Under new CEO John Stankey, AT&T lost weight. AT&T divested DirecTV and other pay-TV assets, and sold its Xandr advertising platform to
Microsoft. With WarnerMedia gone in the second quarter, management can focus on 5G wireless and fiber optic broadband: high fixed cost businesses with attractive economies of scale and recurring subscription revenue.
Abandoning its conglomerate structure will not evaporate the challenges for AT&T. Competition is heating up, especially as subscriber growth slows after a pandemic surge. AT&T must spend to expand its 5G C-band network to 200 million Americans by the end of 2023, and reach 30 million homes and businesses with its fiber network by the end of 2025.
After WarnerMedia, AT&T will have $20 billion in annual free cash flow. According to management, 40% of that, or $8 billion, will go to a smaller dividend (for more on AT&T’s new dividend, see this week’s column on income investing). This year, it can spend $24 billion on capital investments. And a portion of the $43 billion WarnerMedia deal will be used to repay debt. That won’t leave much for big mergers and acquisitions.
Stocks opened the week as they had ended the previous Friday: in a rally. Rose oil. OPEC+ raised production targets, despite struggling to meet old targets. Volatility lingered, but stocks rose_to
Metaplatforms drives stocks down. Productivity in the fourth quarter reached 6.6%; and 467,000 new jobs in January, again mistaking forecasters. On the week, Dow Jones Industrialists rose 1% to 35,089.74; the S&P 500 gained 1.5% to 4,500.53; and the Nasdaq Composite rose 2.4% to 14,098.01.
And there were gains to ponder. Alphabet beat expectations, while splitting the stock 20 to 1.
Exxon Mobil oil prices hit highest earnings since 2014.
General Motors had higher incomes, but
Ford engine hit a pothole.
PayPal Credits and Meta Platforms posted weaker earnings and a poor outlook, and shares were crushed, with Meta losing some $250 billion in value, a record.
Amazon.co.uk skyrocketed on AWS and an increase in Prime price. Spider Man powered
Spotify on site
Then there was
Spotify Technology. The audio streamer was struggling to contain an artist boycott launched by rocker Neil Young over what they saw as podcaster Joe Rogan’s anti-vaccine sentiments. Then, plagued by a low number of subscribers, the title fell by 23%.
Hold the bear
The United States and its NATO allies have prepared sanctions against Russian President Vladimir Putin and his entourage. At the UN, Russia denied that an invasion was imminent and accused the United States of “scaring”. Ukraine arrested a group believed to be preparing to provoke pro-Russian riots, the United States sent 3,000 troops to Europe and accused Russia of preparing a Walk the dog-as a pretext for the invasion. Putin said the West was drawing Russia into the war.
A raid in Syria
In a nighttime airstrike by US special forces in northwestern Syria, Islamic State leader Abu Ibrahim al-Hashimi al-Qurayshi died after setting off an explosion. At least 13 women and children were also killed.
Boris at Bay
British Prime Minister Boris Johnson has refused to step down after the Civil Service released a report into lockdown parties that involved him. London’s Metropolitan Police are investigating 12 different parties for possible criminal charges.
Annals of Deal Making
Elliott Management and Vista Equity Partners have agreed to pay $16.4 billion in cash, including debt, for a cloud computing company
Citrix systems….Sony buys Bungie, the video game maker of Halo and destinyfor $3.6 billion…
AT&T choose to separate rather than split its WarnerMedia unit into
Discovery. AT&T shareholders will own 71% of Discovery, while AT&T will cut its dividend by nearly half… Cevian Capital has taken an undisclosed stake in British telecoms Vodafone, calling for board changes and acquisitions … Blackstone and Carlyle emerged as possible bidders for
Novartis‘ Sandoz generic activity. Novartis considered options for the $25 billion business…Bloomberg reported the antitrust review of
Microsoftit is deal for
ActivisionBlizzard can go to the Federal Trade Commission.
Write to Nicholas Jasinski at [email protected]