AT&T; Shareholders’ Vote Clears Path for Breakup Plan
AT&T; Corp. shareholders on Wednesday overwhelmingly approved a measure clearing the way for a crucial vote later this year to break up the mammoth phone company into several pieces.
The proposal lowers the number of shareholder votes needed to approve the breakup plan from a two-thirds majority to a simple majority. AT&T; said 96% of its shareholders approved the change during the company’s annual meeting in Cincinnati.
Company officials had pushed for the switch, arguing that most corporations use the majority requirement. The company said that its huge base of small shareholders makes it harder to win approvals by the higher margin. Shareholders who don’t return their voting materials are counted as “no” votes by AT&T;, making it particularly difficult to approve controversial proposals.
The vote was an outwardly small change to the company’s charter, but it removed a potentially huge hurdle in approving its breakup plan.
That plan, which would split AT&T; into three separate companies with four separately traded stocks, is expected to be put before the shareholders in a special meeting this summer or fall.
The proposed breakup, announced in October, represents the most radical restructuring of AT&T; since the 1984 split that left AT&T; in the long-distance business and a cadre of “Baby Bell” companies in the local phone business.
Under the plan, AT&T;’s cable and broadband business, it’s wireless business and its consumer and business services units will become three independent companies. The consumer unit, which includes AT&T;’s Internet and waning long-distance operations, would be paired with the business services unit but will have its own “tracking” stock.
AT&T; Chairman C. Michael Armstrong has portrayed the restructuring plan as the best way for shareholders to recoup their losses on the company’s stock.
The stock, still among the most widely held with 4.8 million stockholders, lost two-thirds of its value in the last year. AT&T; shares closed at $20.75, down 40 cents in New York Stock Exchange trading Wednesday. Last April, AT&T; traded above $50.
“I think overall, the breakup does have some potential for investors, but there’s clearly some risk,” said Mel Marten, telecommunications analyst at Edward Jones. “Ultimately, whether this [breakup] was a good idea for shareholders will depend on how the individual units perform over the next five years.”
AT&T;’s troubles started after investors watched Armstrong spend more than $100 billion buying cable companies.
Although the strategy seemed sound at the time, investors eventually began to doubt the prospects for a payback on the acquisition binge. Their anxiety grew as the cable operations gobbled up more cash just as AT&T;’s longtime cash cow, the consumer long-distance unit, began a steep decline due to increased competition from other long-distance carriers.
Armstrong’s grand vision was to sell customers a combination of cable television, wireless communications, local and long-distance phone service and Internet access through one company with one bill.
But AT&T;’s financial health deteriorated further. The company embarked on widespread layoffs and then cut its dividend in December for the first time in its 100-plus-year history.
Armstrong was forced to change direction and presented the outlines of the breakup plan in October.
“This [breakup plan] is a way to try and recapture the lost value [in AT&T;] because of their flawed integration strategy,” said Scott Cleland, chief executive of the Precursor Group, an independent research company in Washington. “This is a big ‘Oops. Undo!’ ”
