BUSINESSWEEK ONLINE : FEBRUARY 5, 2001 ISSUE
SPECIAL REPORT

Breaking Up Is Easy to Do


The idea behind Armstrong's breakup is that the troubled long-distance business will no longer mask the strengths of other operations and that each business will get a more accurate valuation based on its own prospects. That could result in the parts of AT&T (T) being worth a total of $33 a share, or 50% more than its current price. Here's an analysis by J.P. Morgan analyst Marc B. Crossman:

BROADBAND: $13 PER SHARE
This assumes that the unit is valued at 14 times its annual cash flow of $2.85 billion, for a total of $39.9 billion. That's a little less than the industry average of 15 times cash flow. After adding investments and subtracting debt, the broadband unit has about $42.6 billion in equity. Spread that across AT&T's 3.4 billion shares, and you get a value of $13 per share.

AT&T WIRELESS: $9 PER SHARE
Later this year, after a series of deals, AT&T will end up owning about 1.39 billion shares of AT&T Wireless (AWE), which is trading at $22. The $30.8 billion stake works out to $9 for each of AT&T's 3.4 billion shares.

BUSINESS SERVICES: $8 PER SHARE
If you use the industry-average multiple, this unit is worth five times its annual cash flow of $10 billion, taking its total value to $50 billion. Subtract $21.7 billion in debt, and there is $28.3 billion in equity, or $8 for each of AT&T's shares.

CONSUMER SERVICES: $1 PER SHARE
This stock will look and trade like a junk bond. Crossman expects each share to have a dividend of 15 cents annually. That should mean the stock will trade at about $1, since investors would then get a 15% yield on their money--healthy even by junk-bond standards.

INVESTMENTS: $2 PER SHARE
AT&T's stakes in Concert, Net2Phone (NTOP), AT&T Latin America, AT&T Canada, and Japan Telecom are now valued at $6.8 billion, or $2 for each AT&T share.


Data: J.P. Morgan Chase & Co.


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