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The second breakup of AT&T

(Bloomberg) – AT&T Inc. has been called many things during its 135-year history: Ma Bell, monopoly, media conglomerate. The company, which traces the roots of telephone inventor Alexander Graham Bell, was the dominant telephone company for much of the 20th century. So dominant in fact that it was broken in 1982 as part of an agreement with antitrust authorities. But these companies gradually began to merge, culminating in SBC Communications – one of the so-called Baby Bells – buying AT&T in 2005 and taking the name. That was not the end of it. What followed was a series of deals that made AT&T a new behemoth spanning TV, media and advertising. Following a failed acquisition of T-Mobile, the company acquired satellite TV provider DirecTV in 2015 for $ 49 billion, becoming the largest pay-TV provider. It bought Time Warner in 2018 for $ 85 billion, making Ma Bell the unlikely parent company of HBO, CNN, Warner Bros. and DC Comics. The carrier also made smaller agreements, such as the acquisition of AppNexus in 2018, an online advertising platform. And once again, AT&T was too big. This time, it is not the government that is pushing to reduce the company – although the Ministry of Justice did not successfully oppose the Time Warner agreement – but its own investors and CEO John Stankey. Stankey took the helm in July and put him in charge of a company with large debts and a media business that was ravaged by the pandemic. AT&T was also shunted to No. 3 in cordless phone business this year, following T-Mobile US Inc.’s acquisition of Sprint Corp. The company had just launched HBO Max, an attempt to take on Netflix Inc. and Walt Disney Co. in streaming, but perhaps the most pressing issue was regretting some of the work of its predecessor. The last CEO, Randall Stephenson, had spent much of his 13-year deal-obsessed period. He kept a color-coded list of potential companies he wanted AT&T to buy, which led to 43 acquisitions. Now Stankey has his own to-do list: things he wants to sell. “It’s going to keep us busy for a while.” Critics such as activist investor Elliott Management Corp. has encouraged AT&T to focus on subscriber services and return to the “go-big-or-go-home” M&A strategy by winding up acquisitions, including DirecTV. “When you look at what has worked or not worked in telecoms, you see that conglomerates and empire building have not been rewarded by the market,” said Todd Lowenstein, chief banker at Private Bank at Union Bank. Stankey, who has spent his entire 35-year career at AT&T, could be an unlikely person to dismantle AT & T’s acquisitions. empire. He cycled shotgun as a top captain during Stephenson’s decades of urban development. Management had a hand in creating some of the current issues, and he called them directly: Last month, he acknowledged that pay-TV providers like DirecTV are likely to face years of wiring cuts before they hit rock bottom. Now, more than 100 days into the job, he says the plan for the attack is to focus on three key growth areas: wireless – especially 5G – where there is hope for new consumer and business applications; fiber optic network connections to accommodate increasing data traffic; and HBO Max, the online streaming future of AT & T’s video ambitions. When it comes to new acquisitions, don’t expect much beyond opportunistic purchases, Stankey said in an interview in September. “Right now, this management team is focused on getting it done right and moving the distractions elsewhere,” he said. “It’s going to keep us busy for a while.” Last month, AT&T received $ 1.1 billion for its stake in Central European media companies. The company has already sold office buildings and a stake in Disney’s streaming service Hulu. It also received nearly $ 2 billion from the sale of the Puerto Rico phone business earlier this month. The company aims to pay down debt and cut $ 6 billion in annual costs, in part by cutting thousands of jobs. But AT&T still has many potential businesses. to sell or reduce. The question now is how big an asset sale it wants to have – and who might be interested in buying. DirecTV The biggest priority is DirecTV and AT & T’s other pay-TV operations, which have been bleeding customers. AT&T has been exploring opportunities for DirecTV for more than a year, but it is unlikely to find a buyer for the entire business. A combination with Dish Network Corp., the country’s second satellite TV provider, is a scenario. However, reducing the industry to a single player would lead to antitrust control, especially since rural customers have few other options. A proposed combination of the two companies was shot down by the Federal Communications Commission and the Department of Justice in 2002. Instead, AT&T is trying to sell a stake – and possibly control the business – to external investors. a move that could undermine AT & T’s performance. But the ice cube is melting fast: Pay-TV revenues fell by more than $ 1 billion, or 10%, in the third quarter. Apollo Global Management Inc. has been in discussions about such a transaction. And Bloomberg News reported this week that former Citigroup Inc. accountant Michael Klein could make a deal through his blank check firm Churchill Capital Corp. IV. Ideally, an agreement would allow AT&T to remove DirecTV from its books, while maintaining access to some of the cash flow, but it is expected that an agreement will value DirecTV at only around $ 15 billion when final bids are accepted next month. That’s less than a third of the price AT&T paid five years ago. VrioAT & T’s DirecTV Latin America business suffers from some of the same problems as US operations, only with an even more erratic political backdrop. The acquisition of DirecTV in 2015 included satellite companies in South America and the Caribbean – a device that was renamed Vrio. The unit’s biggest problem was the pay-TV business in Venezuela. During the country’s political unrest, the service was shut down after being caught between US restrictions and the local government. After reducing the size and price of the offer, AT&T left the move. Over the past two years, the declining value of the satellite TV business has made the prospect of emptying the business even weaker. Warner Bros. Interactive entertainment Unlike some of the businesses, AT & T’s video game division would be a valuable resource for a number of potential buyers. The company has reportedly explored a sale of the business, which is estimated to be worth $ 4 billion. But AT&T recently pulled the business from a list of non-assets that it is willing to share. The device, whose video games include titles such as Harry Potter: Wizards Unite and Mortal Kombat 11, attracted the interest of several major companies. But with the gaming industry booming during the pandemic – and AT&T facing the complications of wanting to retain licensing rights – the company may have decided that the division was worth keeping to itself. Crunchyroll Animation Video Service was the first step in AT & T’s huge turn to media six years ago. Crunchyroll was acquired through the company’s newly formed joint venture with Chernin Group, called Otter Media. The name is derived from the abbreviation OTT, for content delivered via the internet “over the top” of a traditional platform. Since then, only “streaming” has become the more popular term. AT & T bought out the remaining share in Otter Media from Chernin Group in 2018. More recently, the telecom giant has had other ideas. Last week, the Nikkei business reported daily that Sony Corp. was in final talks to buy the service in a deal worth close to $ 1 billion. CNNCNN is one of the more controversial companies that AT&T acquired when it absorbed WarnerMedia in 2018, with the president regularly attacking the cable news network on social media. It has also been the source of takeover speculation, with Jeff Bezos seen as a potential buyer. But Stankey said in September that CNN was one of the parts of the WarnerMedia structure that is “more closely intertwined than they were before.” In other words, selling it seems less likely. XandrAT & T had high hopes for the AppNexus digital advertising device they bought for $ 1.6 billion in 2018. Xandr was named in a nod to Alexander Graham Bell and was to be an advertising network that all pay-TV providers could use. Advertising industry veteran Brian Lesser was hired to run the business, and Stephenson told investors that the business would bring in $ 2 billion in new revenue by using customer data to deliver targeted ads. These fortunes did not achieve. Less left, and now it’s for sale that new WarnerMedia boss Jason Kilar is bringing in another ad team. Regional Networks AT&T has four regional sports networks, or RSNs, which include rights to teams such as the hockey Pittsburgh Penguins, basketball Houston Rockets and baseball Seattle Mariners. Although live sports are still the closest you have to watching TV these days, owning an RSN has increasingly become a headache. Sports leagues have sought ever-increasing sums for rights to their games, and subscribers are not as reliable as they once were. Sinclair Broadcast Group Inc. just wrote down its $ 4.23 billion RSNs, an admission that it paid too much for the cable channels, which they only bought last year. Looking for cash to pay off debt, AT&T had hoped to sell its RSNs and monetize their $ 1 billion in estimated value. The company applied for a bid last year, but a buyer did not realize it. This year, with sports still trying to bounce back from Covid-19, a sale seems even less likely. Digital LifeI a bold attempt to take on the home security giant ADT Inc., AT&T launched its own “smart home” security and surveillance initiative. in 2013. Although the effort was intended to explore opportunities outside the wireless service, the timing and model may have been wrong. Homeowners were already moving away from expensive security services and bought do-it-yourself systems or products such as Ring from Amazon.com Inc. or Nest from Alphabet Inc. Four years into the venture, AT&T began looking for ways to get out. AT&T Mexico Stephenson crossed borders and ended a decade-long friendship with its one-time mentor Carlos Slim by becoming a direct competitor for mobile customers in Mexico. AT&T bought wireless operator Grupo Iusacell SA for $ 2.5 billion in 2015 and expanded the service to cover most of Mexico by 2018. But Covid-19, exchange rates and the dominance of rival America Movil in Mexico have kept the investment unprofitable and difficult to justify. “It’s going to keep us busy for a while.” What is Stankey doing now? Persevering to get top dollar for some of these assets may not be the right approach, said Colby Synesael, an analyst at Cowen. Stankey just needs to “rip band-aid off and move on,” Synesael said. In other words, take what he can get. “I think it has become clear to him that he needs to do it. And the faster he does it the better, ”said Synesael. – He does not want to use the entire CEO in regretting what he and Randall did before. Get it done now so he can concentrate on other initiatives. For more articles like this, visit us at bloomberg.com Subscribe now to stay ahead of the most reliable news source for your business. © 2020 Bloomberg LP

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