Word: breakups
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...driving force behind the breakup is AT&T's conviction that at current valuations the parts are worth more than the whole. The official line is that the smaller, nimbler companies will be more profitable independently. "With their own resources and asset-based stock they can shape their own destiny and future," says Armstrong. But the plan also reflects AT&T's frustration that investors have been so focused on its evaporating long-distance business. The split is designed to force Wall Street to pay more attention to faster-growing parts of the company...
Wall Street, which generally loves divestitures, has not found a lot to like in AT&T's breakup plan. For starters, it's very hard to figure out just what is going to happen over the next two years. And confusion is a big negative in the risk-averse investment world. There's also grumbling that the various spin-offs and tracking stocks will mean endless--and endlessly expensive--work by investment bankers and lawyers...
...provide consumers with one-stop shopping. And consumers haven't shown any great preference for having a single provider, and a single bill, for all their communications needs. Fewer than 10% of AT&T customers receive bundled services. Curiously, consumers will still be able to get bundled services post-breakup...
Critics see the breakup as a capitulation to investor pressure to get the stock price up at any cost. Armstrong tried gamely last week to present it as consistent with his previous efforts. "Structure serves strategy, and at least in my view, our strategy has been consistent," he said. But not everyone was buying it. "AT&T made a big deal about creating an integrated communications company selling bundled services," says Salomon Smith Barney's Grubman. "That is being abandoned after less than two years of trying...
...little wonder that in these unstable times companies ranging from Lucent to Xerox to Gillette have recently sent their CEOs packing. There hasn't been much public talk of pushing Armstrong out--he will remain chairman and CEO of AT&T--in part because the breakup will be tough enough without a change in leadership. But this is almost certainly Armstrong's last real chance to turn things around. With AT&T stock down 57% this year, shareholders won't be willing to wait on hold forever...