Apologies for sounding Californian, but I believe in karma, particularly when it comes to investing. I learned my lesson years ago when I bought Wells Fargo stock, despite management practices and other signs warning me to steer clear of the security. Silly me, I mistakenly thought that Warren Buffet knew a lot more about how the bank made its profits than I did.
Well, you know what happened to Wells Fargo.
As the saying goes, “Fool me once, shame on you. Fool me twice, shame on me!’
I’m one of the losers who bought AT&T stock nearly two years ago, trusting management assurances and legions of Seeking Alpha “experts” assuring me the hefty 6% or so dividend yielding security was safe. I know diddly-squat about EBITA, CapEX, and the myriad other acronyms bandied about telling me why AT&T was a secure investment, but I instinctively knew to shun AT&T’s stock with the same vengeance I avoided its products and services. I chose to live dangerously, betting I could capture a year or two of dividends and perhaps a modest share price increase.
At this writing, my AT&T holdings are down more than eight percent because of the company’s announcement Monday that CEO John Stankey plans to unload the company’s WarnerMedia assets, which include Warner Bros, HBO, CNN, TBS, and TNN, and merge them into Discovery, whose holdings include HGTV, TLC, Animal Planet, and Motor Trend. WarnerMedia was supposedly the cherry on top of a telecommunications sundae that generated enough cash to support a 6% or so yielding dividend. If all goes according to plan and I stick with AT&T stock, next year I’ll own a traditional telco sundae and a separate media cherry that will be an unappetizing addition to my portfolio.
The business media has glossed over one salient detail about Stankey’s media sale: AT&T plans to cut its dividend in half when the deal goes through, thereby forfeiting its “Dividend Aristocrat” status, a rarefied club of S&P 500 companies which have increased their dividends every year for 25 years or more. AT&T had until the fourth quarter to raise its dividend to retain its elite status, and if it failed to do so, its stock likely would have taken a hit.
AT&T’s perceived dividend security is why it was known as a “widows and orphans” stock. Unloading WarnerMedia provided Stankey the cover he needed to cut the dividend. The ruse so far has worked.
AT&T is among the most ethically challenged companies in America. The company’s history is fraught with dishonesty; its business model is predicated on deceiving and cheating customers to gain market share, then paying record fines with the FCC, the FTC, and other regulatory agencies. For AT&T, paying fines is just the nuisance cost of doing business.
AT&T’s management talks out of both sides of their hand-held devices; former CEO Randall Stephenson was one of the biggest cheerleaders of Donald Trump’s 2017 tax cuts, saying it would allow the company to hire more workers. Instead, he laid off thousands of American workers and offshored jobs to India and elsewhere. Adding insult to injury, AT&T made the U.S. workers train their overseas replacements.
AT&T promised Congress that its $85.4-billion merger with Time Warner would result in lower prices and more choices for consumers. They lied about the pricing and they lied about providing more choice.
I’m also angered by AT&T’s destruction of DirectTV .Conventional wisdom has it the company went downhill because of chord cutting but that’s not why I cancelled the service. I loved the company until AT&T in 2015 got its corporate hands on it and ruined its once stellar customer service staffed mostly by minorities working in southern rural call centers. I care about picture quality and DirectTV’s satellite transmission offered considerably sharper images than my cable provider.
AT&T’s questionable ethics alone should have kept me away from the stock, but there were other warnings I ignored. A critical one was this story in the New York Post reporting that Stankey, a corporate suit from AT&T’s telecom side of the business, told HBO’s senior executives, “I know more about television than any of you!” Stankey’s arrogance was reaffirmed with this comment from an unidentified WarnerMedia executive: “(Stankey) doesn’t understand that the value of HBO is linked to its people.” Not surprisingly, there was a sizeable exodus of WarnerMedia talent when Stankey oversaw the unit.
As is the way in corporate America where top executives fail upwards, Stankey last year was promoted to CEO, replacing Stephenson, the cobbler of AT&T’s media assets. Stephenson walked away with a $64 million severance, despite AT&T’s stock languishing because of his aggressive deal making. Poor corporate governance was another warning sign; AT&T directors are paid generously to rubber stamp what management tells them to.
(As an aside, which AT&T director would you most want to have drinks and dinner with?)
Yet another warning sign to bail from AT&T stock was in September 2019 when Elliot Management, a ruthless hedge fund controlled by billionaire Paul Singer, acquired a significant stake in the company. Bad things can happen to individual investors when ravenous know-it-all hedge fund managers get involved with businesses, particularly creative ones. The most egregious example is billionaire Dan Loeb of Third Point Management.
Loeb was the genius who installed Marissa Mayer as CEO of Yahoo, and according to Vanity Fair would have fired her early on because he knew she was incompetent. Instead, Mayer bought out most of Loeb’s shares for a pretty penny, netting Loeb more than a $1 billion profit. Meanwhile, Yahoo’s remaining investors were stuck with Loeb’s hand-picked Mayer, who ran the technology company further into the ground.
What galls me about AT&T’s WarnerMedia sale is the mind-boggling waste of shareholder money. AT&T paid more than $80 billion to acquire Time Warner, becoming the most indebted nonfinancial company in the process. Countless millions more were spent on lawyers, lobbyists, and professional witnesses to secure regulatory approval. Thousands of workers lost their jobs as AT&T integrated its media assets and created more “efficiencies.” Nothing of any value was created; in fact, the reverse was true. HBO once had great cachet – its reputation and prestige declined under AT&T’s ownership much like Merrill Lynch’s did when it was acquired by Bank of America.
Melding HBO into Discovery makes as much sense to me as Tiffany & Co. merging with Kay Jewelers. Discovery specializes in so-called unscripted and reality show genres, appealing to viewers who move their lips when they read the credits. That kind of programming differs greatly than the Plot Against America, one of the few new HBO series I can recall watching since AT&T bought the network. A Wall Street Journal profile of David Zaslav, the Discovery CEO who will oversee the merged WarnerMedia company, doesn’t list even once memorable or notable show the network generated under his watch.
It’s disappointing the business media doesn’t hold anyone accountable for M&A debacles. It would behoove an enterprising reporter to profile all the investment bankers and other advisors involved in AT&T’s merger with Time Warner and highlight their dubious advice and spreadsheets. It wouldn’t surprise me if some of the same advisors were involved in the WarnerMedia divestiture.
I’m all for free markets, but the markets aren’t free if they aren’t fair. AT&T’s looming dividend cut is yet another reminder about how the stock market is rigged against individual investors and why we should only be owning diversified, low-cost, ETFs. Managements are supposedly beholden to all investors, but that’s a myth. Jesse Cohn, an Elliott Management executive who pushed AT&T to sell assets and focus on its core business, tweeted he was pleased with Stankey’s decision to unload WarnerMedia.
Elliott management I believe has so far lost money on its AT&T bet, but I’m confident one way or another it will profit from its investment. That’s why I haven’t yet sold my AT&T stock, naively hoping that I, too, may ultimately benefit from Elliott’s market advantage and muscle.
The definition of insanity is doing the same thing over and over and expecting a different result. The stock market is no place for little people. If I fail to liquidate all my individual holdings, I’m certifiably insane.