Withdrawal of merger bid
– On December 19, 2011, AT&T announced that it would permanently end its merger bid after a “thorough review of its options” which included a negotiation to sell a large portion of T-Mobile assets to Leap Wireless in attempts to alleviate concerns by the FCC regarding a monopoly, but to no avail. The announcement included an assertion that the failure of the acquisition would increase costs to consumers and harm innovation in the wireless market. As per the original acquisition agreement, Deutsche Telekom will receive $3 billion in cash as well as access to $1 billion worth of AT&T-held wireless spectrum.
What’s the cost of a $4 billion gamble gone wrong?
- For AT&T CEO Randall Stephenson, the answer is, “$2 million.” That’s the sum by which AT&T’s board cut his 2011 compensation as a direct response to the failed T-Mobile takeover bid Stephenson led. According to a February 2012 regulatory filing, AT&T CEO Randall Stephenson’s compensation was cut by “more than $2 million” in response to the effect the failed purchase attempt had on AT&T’s bottom line. His total compensation for 2011 was $22 million, an 18.5% drop from the $27 million he received the previous year.
- AT&T’s $48.5 billion agreement to merge with DirecTV, while hailed by the telco giant’s CEO Randall Stephenson as “something very special,” was born years ago out of several clear missteps by the executive.
- In 2008, one year after Stephenson became its CEO, AT&T was unable to outbid Verizon at highly anticipated government spectrum auctions.
- That same year, when rival Alltel and its valuable spectrum went on the block — spectrum that was a perfect fit for AT&T — Stephenson was again outbid by Verizon.
- In the third misstep, Stephenson had AT&T in 2010 so wrapped up in an ultimately unsuccessful bid for T-Mobile that, sources said, it failed to focus on a spectrum sale by Comcast. Again, Verizon beat AT&T to the punch.
- The missed deals, in part, led to AT&T, the No. 1 wireless company in 2007 when Stephenson took over as CEO, falling far behind Verizon.
- “AT&T could be neck and neck with Verizon, and they are not,” a telecom consultant said. “The idea of now buying a video platform does not make any sense.”
- As of Dec. 31, Verizon had 96 million post-paid wireless customers, compared with AT&T’s 73 million.
- Perhaps more important, AT&T in 2007 had double Verizon’s free cash flow (net cash from operations minus capital expenditures). Now, the rivals have reversed positions.
- Verizon in 2013 generated $22 billion in free cash flow, compared to AT&T’s $14 billion.
- Stephenson said in 2007 that video represented a once-in-a-decade opportunity to build AT&T’s next billion-dollar business. Without the spectrum, its U-Verse video has just 5.7 million customers.
Randall Stephenson should Resign