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AT&T: A lesson in the destruction of shareholder value

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

After a decade of empire-building, John Stankey (CEO of AT&T) has pulled the proverbial ripcord and ended an era of capital destruction that can only be rivalled by the likes of Jeff Immelt, the ex-CEO of General Electric. 

Last week, AT&T announced the next stage of dismantling the “empire” by agreeing to the spin-off and merger of WarnerMedia with Discovery. As a reminder, AT&T purchased this business for $85 billion only five years ago.  

In isolation, this seems like a large strategic misstep. But when you combine this announcement with the deal to sell and spin off the DirecTV division − which was initially purchased for $67 billion − into a new company worth $16 billion, the scale of shareholder value destruction is unprecedented. 
So, in six years, the senior management team at AT&T have created a company that is less valuable and more heavily indebted than when it first announced plans to acquire DirecTV and then Time Warner. 
This prompts the question of what was the strategic rationale and does this provide any justification for the deals? The problem is that these acquisitions were for assets which have business models orthogonal to AT&T’s core business. Whereas AT&T competes for customers in a zero-sum game, WarnerMedia, for example, has differentiated content best leveraged by reaching as many customers as possible. 
AT&T tried to bundle its content to create a differentiated offering in the market – resulting in excluding a large cohort of potential customers for HBO Max. It is like Man City benching its starting line-up for the Champion League final – how could HBO Max thrive by only being offered to AT&T customers? 
We care about how senior management are incentivised and when we see management extracting too much value from a company, we immediately remove it from our investable universe. A good question at this stage, therefore, would be how much have management paid themselves over this period of extraordinary capital destruction? 
The numbers are jaw-dropping, Randall Stephenson, the ex-CEO of AT&T, who along with Stankey built this empire, stepped down earlier this year after receiving $32 million in compensation in 2020. He also left with a golden parachute comprising a pension valued at $64 million and an additional $27.4 million in deferred earnings – highlighting why compensation must be linked with business performance. 
But why does this matter for income investors? Simply put, if you chase yield (AT&T traded on a 6% dividend yield), you can get what you pay for – a stock that is cheap for a good reason. In the UK, you have to look no further than Vodafone and British American Tobacco. 
Unfortunately, management teams who have the wrong incentives can be set on protecting the status quo no matter what the cost is to shareholders and other stakeholders. This can be seen in other companies making large strategic decisions about future capital allocation decisions where they have business models that are orthogonal to their core business. 
When investing for income, we prefer to invest in those companies built to last with an eye on the future by being busy innovating to stay ahead of competition and not moving into adjacent markets by destroying shareholder capital. 

This is because price is what you pay but value is what you get.  

Understand common financial words and terms See our glossary
Key Risks 
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.  


This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 
This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 
Storm Uru
Storm Uru
Storm is a lead fund manager of the Liontrust Global Innovation, Liontrust Global Dividend and Liontrust Global Technology funds. He has 12 years industry experience, including as a fund manager and trader and prior to Liontrust worked at Neptune Investment Management running global funds and covering the global industrials sector. He holds an BBS in finance and MBS in international business from Massey University, an MBA from Oxford University and is a CFA Charterholder. He represented New Zealand in rowing at the 2008 and 2012 Olympic Games, winning bronze in London in 2012.

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