AT & T’s Redemption Attempt Deserves Investor Indulgence

AT & T's Redemption Attempt Deserves Investor Indulgence
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Combining your media assets with Discovery could give you focus, and fix the mistakes of the past

AT & T’s purchase of Time Warner in 2018, which spliced ​​telecommunications and television programming, was an example of the logic of cartoons like Bugs Bunny. CEO John Stankey has a chance to try to straighten it out. A possible combination of AT & T’s media assets with Discovery could give the US telecom group some focus, and allow Stankey to distance himself from the mistakes of the past, including his own.

The talks Bloomberg first reported Sunday would see $ 230 billion AT&T merge its WarnerMedia properties, which include streaming service HBO Max, movie studio Warner Bros, and cable networks like CNN, with the $ 17 billion reality TV empire. Presumably AT&T would continue to run the new set.

A little separation would show that AT&T is rethinking its transformation into a modern media company. Despite the $ 109 billion it spent buying Time Warner, Walt Disney, Netflix, and (Alphabet’s) YouTube have overshadowed its efforts at the streaming.

HBO Max, launched in May 2020, is just a fraction of the size of its rivals, even with more than 60 million customers. Meanwhile, AT&T has accumulated huge debts of more than 160,000 million dollars, to which the purchase in March for 23,000 million of wireless spectrum from the United States Government for the construction of its 5G network has not been good.

AT & T’s unbundling of the DirecTV satellite business, with the help of the TPG purchasing fund, serves as a prequel. AT&T is the majority shareholder, but the satellite pay TV service operates in full competition with its parent.

Discovery also has an encouraging precedent: When it bought Scripps Networks Interactive in 2018, they both anticipated a 3% savings on their combined revenue. In a deal with WarnerMedia, the same criteria would mean about $ 1 billion a year in savings, or about $ 9 billion, taxed and capitalized.

Whatever the final details, investors should be lenient on anything that tries to undo the value destruction AT&T has inflicted on them thus far. Since the Time Warner acquisition was announced in 2016, the company’s total shareholder return is just 13%, compared to 49% for Verizon Communications. Had AT&T matched its rival, it would have added more than $ 110 billion in market value and dividends, instead of the $ 30 billion that shareholders actually saw.

For Stankey, it is a form of atonement. Though he’s new to the AT&T CEO role, he previously ran DirecTV and Time Warner, which means he’s partly responsible for the company’s poor operating record. But undoing a reckless transaction is still commendable and daring.