New CEO's Big Move at AT&T


Randall Stephenson announces the telecom giant plans to buy back 400 million shares and raise its dividend 12.7%

By the Associated Press with BW staff

The new chief executive at AT&T (T) is already making a big impression at the telecom giant.

On Dec. 11, AT&T said it will buy back 400 million shares and raise its dividend 12.7%, pushing the company's stock up sharply. It's one of the most significant moves yet by Randall Stephenson, who took over as CEO in June from longtime chief Ed Whitacre.

The 400 million shares represent about 7% of the company's outstanding shares, one of the most widely held in the world. At the stock's Dec. 10 closing price of $37.90, the buyback would cost the company more than $15 billion. In trading on Dec. 11, the stock surged 6% to more than $40 a share. AT&T said it expects to complete the repurchase by the end of 2009.

"This latest dividend increase, combined with the new share repurchase authorization, reflects the strength of AT&T's operations, and our board's confidence in the future of our business and our ability to continue to deliver strong results," said Stephenson, in a statement. "AT&T has great assets in a growth industry, and we're excited about the opportunities we have to continue to grow our business while also delivering value to shareowners."

Analysts applauded the move. S&P equity analyst Todd Rosenbluth called the company's Dec. 11 forecasts "encouraging" and kept his strong buy rating on the stock. In an earlier report on the company (BusinessWeek.com, 12/4/07), Rosenbluth said AT&T should gain market share in broadband and wireless in 2008, and is well-positioned to generate revenue growth next year despite the prospect of a U.S. economic slowdown.

Yet AT&T and Stephenson are still in the unfamiliar position of playing catchup. After scorching returns in the past two years, the telecom giant has seen its shares go sideways this year, while archrival Verizon Communications (VZ) has picked up momentum. New York-based Verizon's stock is up more than 20% in 2007, while San Antonio-based AT&T's stock has risen about 7%.

One big reason is the divergent strategies the two companies have pursued for television. Verizon's approach has been much more ambitious and costly, involving the stringing of fiber-optic lines into customers' homes to deliver video services. Investors grumbled about Verizon's expenses in the early years, but the strategy is now paying off, as the company adds 2,000 video customers a day seven days a week (BusinessWeek.com, 10/1/07).

AT&T took a more conservative approach in television, concentrating instead on acquisitions and wireless services. Its video service, which is delivered over traditional phone lines and is called U-verse, has been delayed several times. Recent news reports said AT&T was in talks to acquire satellite TV broadcaster EchoStar (DISH), which would have given the company a different route to reach customers.

But Stephenson proclaimed his commitment to the existing video service on Dec. 11, at the same time he announced the dividend hike and share buyback. He said the U-verse service will be available to 30 million customers by 2010. AT&T expects to spend between $4.5 billion and $5 billion on U-verse through 2008.


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