The spinning-off of Warner Media
A review of AT&Ts folly
Last year I sold all of my AT&T shares shortly after the announcement of the AT&T spin-off.
I talked about the reasons why I sold in my post titled “Why I sold AT&T” so check it out if you’re interested in my thought process at the time.
It’s now been almost a year since I’ve sold out, and AT&T has recently come out with the final details of the spin-off, so I thought we could take this time to look at the Spin-off details, the status of the company, and whether I still stand by the reasons for which I sold the company.
Spin-Off Details
You can read the full details straight from AT&T’s website here.
The core details are as follows:
Shareholders will receive shares in the newly created Warner Bros. Discovery, Inc. (WBD)
For each share of $T, shareholders will receive 0.24 shares of $WBD
$T shareholders will continue to hold the same number of $T shares following the spin-off
AT&T has declared a quarterly dividend of $0.2775 per share
This results in an annual dividend of $1.11 per share compared to the previous $2.08 per share
This results in a dividend cut of $0.97 per share per year
The Spin-off will be closed on the 5th of April, 2022
Overall this is about what I expected since last years announcement, though it’s still disapointing to see the company and its failing management go through an ill-conceived spin-off.
My stance on the matter remains the same, I don’t think that it’s a good idea for either company to go their separate ways.
Ultimately Warner Bros. Discovery, Inc. is being saddled with a ton of debt that will hamstring them going forward and prevent them from being a serious competitor to Netflix or Disney+.
Additionally the dividend cut, although arguably necessary given the lackluster prospects of AT&T in the future, is something that has completely removed the position that AT&T had in my portfolio as the “High Yield low growth” company.
I’ve since replaced it with Altria, a better managed company with a clear plan that they are executing.
The one good thing I can say about AT&T is that at least now they will have the free-cashflow to pay-off their massive debt.
Whether they will actually do that, I’m not sure, since their management team does not inspire confidence.
In fact, if we look at their 2021 Annual report we can see that they paid down less than one tenth of the Long Term debt they repaid in 2020, so clearly they don’t seem to be going in the right direction.
Going forward we can see a lumpy debt repayment schedule, but of course this doesn’t mean they will not merely refinance this debt and “push the problem forward”.
They certainly have no problem continuing to issue debt…
Overall I remain unconvinced in Mr. Stankey’s management, and given the companies share price performance over the past year it’s clear that the market doesn’t think he’s doing great either.
My Current Stance: SELL
What about you? Are you holding AT&T? Are you Bullish on the spin-off?
Let me know why in the comments below!
Thanks for sharing your thoughts. I recently got into AT&T, as the dividend cut will allow them to deploy capital to higher return areas. I dont think the Management has guided to lowering the debt in the near term, but instead are working on increasing the cashflow through investing in the business which would decrease the leverage ratio. My understanding is the company will first buy back shares if it remains cheap in 2023/2024 and then maybe look at increasing dividends. I like setup now, the management most likely wont do any acquisitions for a while (Thank god!!) and all the FCF is going to go towards growth capex/share buybacks/dividends. At about 10 x 2022 Estimated FCF, the stock is cheap in my opinion.