Some Investors Are Fed Up With AT&T's Costly Obsession With Merger Mania

from the growth-for-growth's-sake dept

This wasn't how it was supposed to go for AT&T. In AT&T executives' heads, the 2015, $67 billion acquisition of DirecTV and the 2018 $86 billion acquisition of Time Warner were supposed to be the cornerstones of the company's efforts to dominate video and online video advertising. Instead, the megadeals made AT&T possibly one of the most heavily indebted companies in the world. To recoup that debt, AT&T has ramped up its efforts to nickel-and-dime users at every opportunity, from bogus new wireless fees to price hikes on both its streaming and traditional video services.

Not too surprisingly, these price hikes are now driving subscribers to the exits.

The company's latest earnings report indicates that AT&T not only lost another 778,000 "traditional" video subscribers last quarter (satellite TV, IPTV), but it lost another 168,000 subscribers at its DirecTV Now streaming service -- due to "higher prices and less promotional activity." While the stupidity of these efforts (not to mention AT&T's absurdly confusing TV branding) has been apparent to analysts and the press for a while, investors have also now started to criticize AT&T's "growth for growth's sake" mindset.

For example, "activist" (a generous term) investor Elliott Management recently conducted a detailed review of AT&T’s business management over the last decade and came away notably unimpressed. In a public letter to AT&T executives, the investor -- whose funds own around $3.2 billion in AT&T stock -- makes it pretty clear that AT&T's obsession with merging is not doing it any favors:

"AT&T has been an outlier in terms of its M&A strategy: Most companies today no longer seek to assemble conglomerates. This approach is more characteristic of a prior era, calling to mind the Conglomerate Boom of the 1960s or the Mike Armstrong years at the “old” AT&T. It also represents a departure from the approach articulated in 2007 by the Company’s Chairman and CEO at his first analyst day after being named to that position: “When there’s a temptation to want to launch off into areas that may not be closely tied to our strengths or which are going to distract us from an operational focus, that won’t happen."

We firmly believe that AT&T’s M&A strategy has not only contributed directly to its profound share price underperformance, but has also caused distractions that have contributed to the Company’s recent operational underperformance."

Granted AT&T's merger mania has had a number of additional downsides investors probably actually support, like the billions in regulatory favors and tax breaks the company has received in recent years, only to pocket that money before laying off employees and skimping on network investment. Amusingly, Eliot's complaints excited the President, who was quick to use said complaints to bash his longstanding nemesis, CNN:

Granted somebody might want to inform Donald that despite a lot of whining about the news divisions of both AT&T/Time Warner and Comcast NBC Universal, his administration has doled out more regulatory favors and handouts to both companies than any administration in American history -- with little to nothing to really show for it.

Filed Under: consolidation, investors, merger mania
Companies: at&t


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  • This comment has been flagged by the community. Click here to show it
    identicon
    You're an Aircraft Carrier short of a Strike Group, 16 Sep 2019 @ 6:45am

    Oh, boy. The "Hate on ATT" minion with yet another DULL piece.

    You should be grabbing attention in this PRIME slot, but you wrote this in your sleep and phoned it in. So DULL that I'm surprised you can get my browser to even display it.

    [Trump] administration has doled out more regulatory favors and handouts to both companies than any administration in American history -- with little to nothing to really show for it.

    Hey, don't forget the TAX CUTS FOR THE RICH AND THEIR CORPORATIONS! Allowed GOOGLE and APPLE to bring in HUNDREDS OF BILLIONS that were kept "offshore" until rate lowered, and then were mostly blown on stock buy-back, effectively rewarding the already filthy Rich rather than labor or investing. -- Just DON'T FORGET OTHER CORPORATE CRIMES, okay?

    reply to this | link to this | view in chronology ]

    • icon
      Gary (profile), 16 Sep 2019 @ 7:18am

      Re: Oh, boy. The Troll"

      Hey, don't forget the TAX CUTS FOR THE RICH AND THEIR CORPORATIONS!

      Don't forget the biggest corporate welfare of all - the GOVERNMENT granted monopoly of copyrights granted for 90 years to your beloved Corporations!

      You love corporations so much Blue Balls. When are you going to marry AT&T?

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 16 Sep 2019 @ 7:56am

      Re:

      Hey, don't forget the TAX CUTS FOR THE RICH AND THEIR CORPORATIONS!

      You forgot the ones AT&T was given by Ajit Pai.

      You fail, blue.

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 16 Sep 2019 @ 10:03am

        Re: Re:

        Privatized profits and socialized losses, same old story.
        Funny how they get all flustered when this is pointed out.

        reply to this | link to this | view in chronology ]

    • icon
      bhull242 (profile), 17 Sep 2019 @ 3:58pm

      Re: Oh, boy. The "Hate on ATT" minion with yet another DULL piec

      I call “whataboutism”. None of that stuff removes from Bode’s point.

      Techdirt has no obligation to report on what you think it should. Techdirt reports on what Techdirt wants to. Deal with it.

      reply to this | link to this | view in chronology ]

  • icon
    PaulT (profile), 16 Sep 2019 @ 6:46am

    "Amusingly, Eliot's complaints excited the President, who was quick to use said complaints to bash his longstanding nemesis, CNN:"

    Amusing isn't the word, really. What you have here is the President Of The United States gloating because an American company is potentially going to lose thousands of jobs for Americans. Under any other administration, this would be a scandal of the first order, but here it's not even the most stupid or dangerous thing he's said in the last 7 days.

    reply to this | link to this | view in chronology ]

  • icon
    DannyB (profile), 16 Sep 2019 @ 6:57am

    There can be only one

    AT&T could form AT&T-Mobile.

    Then merge with: ABCNNBCBS

    reply to this | link to this | view in chronology ]

  • icon
    DannyB (profile), 16 Sep 2019 @ 7:01am

    Perverse Incentives

    Merger Mania could be a result of perverse incentives.

    Imagine if the people who would gain significant self enrichment from a merger are the very ones that can cause the merger to happen. What would you expect to happen? Even if the merger is in the interest of nobody else.

    Another example of a possible perverse incentive situation. I suspect Google internally incentivizes creating new products over maintaining and servicing existing products. Hence, we see existing well working products discontinued to be replaced by different products that don't do quite the same thing, but have different overlapping groups of functionality.

    reply to this | link to this | view in chronology ]

    • icon
      Gary (profile), 16 Sep 2019 @ 7:34pm

      Re: Perverse Incentives

      Imagine if the people who would gain significant self enrichment from a merger are the very ones that can cause the merger to happen.

      ...isn't that the way mergers without already? Why imagine it?

      reply to this | link to this | view in chronology ]

  • icon
    Anonymous Anonymous Coward (profile), 16 Sep 2019 @ 7:28am

    What goes up, must come down.

    Is it really 'growth for growth's sake' or is is 'growth for executive enrichment's sake'? One of the most heavily indebted company in the world, but who has looked into how this has impacted executive compensation, especially in the bonus area? I'm thinking that not only were no bonus payments missed, but that they weren't significantly reduced. What is the impact of bonuses paid on the debt load?

    That brings the question, if bonuses are supposed to be performance based, but obviously aren't, isn't that just pay (and what are the income tax implications of that)? Or, if performance based, based on what performance? This vaudeville act doesn't seem to be the kind of performance bonuses should be based upon. Or is it burlesque?

    Here's hoping that all of those bonuses were paid with stocks that are declining rather than growing in value. That might teach those executives something about measures of performance where declining customers counts and revenues don't. But share price shouldn't be the primary measure.

    reply to this | link to this | view in chronology ]

    • identicon
      Anon, 16 Sep 2019 @ 9:23am

      Read "Barbarians At The Gate"

      "Barbarians at the Gate" is a tale of the leveraged buyout of RJR Nabisco by its management. The lesson to be learned is that upper management are shady dealers and really have no clue what they are doing when the going gets complicated. They started at $55/share and ended up paying $107 a share after the bidding was over.

      I submit, if 2008 didn't prove it already, that upper management at most large bureaucratic organizations (and AT&T is at the top of this list) have minimal clue what is needed to manage. They arrived in their position by office politics and manage by sheer inertia of the organization. The iceberg is dead ahead but they don't try to veer away in a better direction until collision and sinking is inevitable. We've seen the same with airlines, cities, big banks and investment firms, Detroit auto makers, and telecoms.

      Growth is what worked for others in the past, so it must be the way to raise share price now... right?

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 16 Sep 2019 @ 4:52pm

        Re: Read "Barbarians At The Gate"

        Sure there is an iceberg dead ahead, but we are planning on selling "iceberg tour cruises" and 'authentic collectable ice chunks that sunk the AT&T' once we hit it...

        At least that was the plan that the last executive explained, but right before we are about to hit, I jump out the window on my Golden Parachute and retire with 3.4Billion of the customer's dollars... I just follow orders, just doing what I'm told like a good soldier

        reply to this | link to this | view in chronology ]

  • icon
    Bloof (profile), 16 Sep 2019 @ 7:35am

    They're trying to become the GE of telecoms, because growth through acquisitions never ends in tears.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 16 Sep 2019 @ 9:13am

    Lost subscribers

    "We were sure we had a few hundred thousand people subscribed to AT&T Go, but on closer inspection we can't find any evidence that a service by this name ever existed."

    reply to this | link to this | view in chronology ]

  • icon
    Berenerd (profile), 16 Sep 2019 @ 9:22am

    Well...

    What do you expect from the Administration that feel facts are fake news and Alternative facts are truth?

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 16 Sep 2019 @ 4:32pm

    It is the nickle and diming along with piss poor customer service that led me to drop their services. Thanks to Techdirt you could see this coming long before it arrived.

    After being a customer for a long time to AT&T I no longer desire their overpriced, low preforming services, for things I can find cheaper in other places.

    To put it simply, their fees for the use of their services doesn't match up to the value of the products they offer. As with most corporations they have wildly overpriced their offers and underperformed in customer relations.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 16 Sep 2019 @ 5:59pm

      Re:

      Shhhh! Don't let out_of_the_blue know that! It'll blow his AT&T-loving mind!

      reply to this | link to this | view in chronology ]

      • icon
        PaulT (profile), 17 Sep 2019 @ 12:08am

        Re: Re:

        Nah, he secretly knows this stuff, which is why he also supports things like gutting net neutrality and preventing effective competition. Customers can't jump to better-performing competitors if they don't exist...

        reply to this | link to this | view in chronology ]


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