T - AT&T

[Guest IntrinsicValue]

On  05/11/2010, in the Denver Post after the Qwest-CenturyTel merger, Level 3 Communications vice chairman had this to say:

 

"We believe that further consolidation is probable, and we plan to be an active participant," Level 3 vice chairman Buddy Miller said last week. "To put it simply, we believe that a dollar of revenue added to our network from a merger is worth more than on the other company's stand-alone network."

 

http://www.denverpost.com/ci_15057591?source=pkg

 

James Crowe CEO of Level 3 Communications  said " There's a lot of money that is interested in sponsoring consolidation." (September 2010 )

 

 

Longleaf knew back in 2002 that the long-haul IP backbone networks of At&t, Verizon, Sprint and Qwest would some day be interested in mereging with Level 3 Communications.

 

LONGLEAF PARTNERS FUNDS

SEMI-ANNUAL REPORT

at June 30,2002

 

 

Partners Fund - MANAGEMENT DISCUSSION

by Mason Hawkins, Staley Cates, and John Buford

 

After the close of the quarter, the Partners Fund, together with Berkshire

Hathaway, Legg Mason, and Longleaf Partners Small-Cap Fund, completed a

private placement in Level 3 convertible notes. Although typically we neither

own corporate bonds nor do private placements, this was a compelling opportunity

that the Fund's flexible policies allowed us to pursue and that we did not

want to forego. The ten-year notes position Longleaf ahead of the common

equity, pay a 9% cash coupon, and are convertible at any time to common equity

at $3.41 per share - a price that is under the stock's current level, and is far

below the company's growing intrinsic value.

 

Level 3 owns the best fiber telecommunications network in the industry.

Importantly, most of its competitors struggle with huge debt levels and further

significant capital expenditure requirements. Many are now in bankruptcy.

Customers are universally worried about their service providers' reliability,

financial integrity, and ability to provision future needs. Level 3's superior

network infrastructure, its servicing capabilities, and its capital resources position

the company to become the clear industry winner. As we said in the press release

announcing the placement, ""We invested in Level 3 to take advantage of

consolidation opportunities in the telecommunications arena. We believe these

opportunities are substantial. Level 3 is uniquely and competitively positioned,

and its management team, led by Jim Crowe, is most able.''

 

 

 

 

[Guest ValueCarl]

This is interesting, and makes one wonder who the helpees may be? I only say this because if his pool of capital is too large, he will not "help others" as much as he may wish assuming his goals to prosper are similar to his past investment history including "concentration" and "small and mid-sized companies." It also appears that he wants to be paid "one percent;" win, lose, or draw, unlike Buffett's Original Partnership without seeing his full offering or investment structure, i.e., high water benchmarks, along with a perpetual "true up" before receiving newly earned compensation.

 

Can Lou help the homeless and oppressed?  ;D

 

SQ Advisors will charge a 1 percent management fee and no performance fee, according to its SEC registration. Managers historically have taken 2 percent of assets and 20 percent of investment profits for running hedge funds.

 

“This business is not being run to maximize income,” Simpson said. “One of our prime thoughts was to try to help people.”

 

Simpson went on to invest Geico’s capital in the stocks of small and mid-sized companies, taking stakes in businesses such as Nike Inc. and CarMax Inc.

[stahleyp]

Maybe I'm being judgemental, but isn't this spam?

 

Linking random posts to a topic - the Lou Simpson article...and how he likes the telcom industry, really?

 

 

L3 homepage in your profile, L3 picture as your avatar.

[Myth465]

I predict this thread is deleted.

[Guest ValueCarl]

Before it is though, what do you think about Lou's investment structure while measuring it against Warren's original? Sanjeev, must still be in the rack!  ;D

[stahleyp]

I predict this thread is deleted.

 

Please Parsad, I just would like to throw out some ideas, this is not spam. I'm sorry if I love Level 3 Communications so much.

 

There is already a Level 3 thread.

 

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=3195.0

 

Also, you wrote about it the other day on multiple boards...not just the investment idea board.

[stahleyp]

Before it is though, what do you think about Lou's investment structure while measuring it against Warren's original? Sanjeev, must still be in the rack!  ;D

 

You know, I think it's fair. I could mistaken, but I think shareholders end up better off if it's 1% per year vs the 25% of returns.  The hurdle rate is nice for low return environments.  I think Buffett also thinks it's fair - that's the same structure SEQUX had when they started managing Buffett's clients from the partnership days.

[stahleyp]

ok i will delete all my posts to end the witch hunt

 

 

LONG LIVE LVLT

 

I'm not saying you need to delete all of your posts. I'm all for more productive members. Just the way you go about things seems a little spammy. Again, maybe I'm being judgemental. Sanj is certainly the ultimate decision maker. I'm glad he lets me post still! ;)

[Myth465]

I would say the major issue is you keep replying to your own thread. You posted 4 posts in a row.

[Guest ValueCarl]

It's a great post containing two great subject matters, while being vastly different in content compared to IV's earlier one which seemed a little stir crazy, if I recall it properly.  ;)

 

On the other hand, the value of "consolidating" may be being held up predicated upon how LVLT's dispute with Comcast on behalf of Netflix ends up being disclosed.

 

The "value" of Lou's compensation plan, is more interesting to me at this time, however.

 

One percent; win, lose or draw, is this what I am reading about? I don't like that! Big Lou should be paid for performance after he reaches important benchmarks for his important "helpees."

 

Who are those down trodden "helpees" Lou needs to help, by the way?  ;D 

 

 

[Guest ValueCarl]

With Patrick Henry stating, "Give me LIBERTY, or give my DEATH!"

 

Yes, some things are worth dying for, and it's more than stinking, dirty, money! It's for the good, common welfare of "The People" who dwell and fight the daily struggles, having to "toil" inside of a nation where "rules of law" are expected to be adhered to, especially including the rich and haughty who might be considered their, "Task Masters!"        

[saltybit]

https://www.barrons.com/articles/at-ts-baby-bonds-offer-6-plus-yields-51545298200

[no_free_lunch]

Those baby bond yields are now down to low 5% range.  T dividend is up as the stock has fallen, now around 7.7%.

 

Price to free cash flow is 6.5.  Debt is about 5x fcf, high but falling.  They are refinancing and will slowly lower their rates if we remain in an extended depression.

 

The management is the concern of course, they are not stellar.  However they have been paying down debt and perhaps can remain focused for a year or two on finances.

 

It seems safe but boring.  It is down by 1/3 and while it never seems to work out, there is that potential for it to pop back at some point.  If not, the dividend is quadruple bond yields.

[valuedontlie]

This looks like a decent trade back to mid-high 30's range...

 

I don't consider 5x debt/FCF to be "high" -- most companies with 3x or better debt/EBITDA fail to convert that to 5x or better debt/FCF.

 

Forget about management for a minute, they are repaying debt and selling assets = good things. I can see the narrative shifting to: "hey, debt isn't all that bad and the yield is crazy high!"

 

Silly to value a company on dividend yield alone but makes a bit of sense here with the long running history and emphasis (weeds out the one-off items in other fundamentals). The yield should mean revert once market realizes balance sheet and dividend are in better shape than headlines indicate. Though this hasn't happened at Altria...

 

Alternative view -- a 7-8% dividend yield with no price appreciation may outperform the SPX over the next 3-7 years!

[fareastwarriors]

T&T considers selling significant minority stake in DirecTV, AT&T Now and U-Verse pay-TV operations, sources say

 

https://www.cnbc.com/2020/11/03/att-considers-selling-significant-minority-stake-in-pay-tv-business.html

 

The deal could include 30% to 49% of the combined pay-TV distribution businesses, said the people, who asked not to be named because the discussions are private.

 

Final bids are due in early December, the people said. While valuations haven’t been determined, a deal may value DirecTV at less than $15 billion including debt, two of the people said. AT&T acquired DirecTV in 2015 for $67 billion with debt. A deal will not include DirecTV’s Latin American business, the people said.

 

AT&T ended the third quarter with about 17 million legacy TV subscribers (DirecTV and U-verse combined), down more than 16% from a year earlier. AT&T Now customers fell 40% to 683,000.

[ratiman]

How long before Stankey gets fired and/or T admits the Warner acquisition was a disaster and looks to a spinoff/sale? I give it 18  months.

[glorysk87]

This looks like a decent trade back to mid-high 30's range...

 

I don't consider 5x debt/FCF to be "high" -- most companies with 3x or better debt/EBITDA fail to convert that to 5x or better debt/FCF.

 

Forget about management for a minute, they are repaying debt and selling assets = good things. I can see the narrative shifting to: "hey, debt isn't all that bad and the yield is crazy high!"

 

Silly to value a company on dividend yield alone but makes a bit of sense here with the long running history and emphasis (weeds out the one-off items in other fundamentals). The yield should mean revert once market realizes balance sheet and dividend are in better shape than headlines indicate. Though this hasn't happened at Altria...

 

Alternative view -- a 7-8% dividend yield with no price appreciation may outperform the SPX over the next 3-7 years!

 

Counterargument: the dividend isn't as secure as it appears

 

Cash from operations is ~$46B

 

Dividend in aggregate is $15B, and at first glance appears to have decent coverage

 

CapEx is ~$20B

 

Minimal debt next two years, then avg annual amount maturing is ~$7.5B after that

 

So call it $42.5B cash needed annually on $46B of cash from operations

Obviously some room to refinance debt if needed, but likely need to pay some of that down to maintain credit ratings.

 

Add in the fact that they likely need to increase capex just to maintain their competitive position, particularly with TMUS/S combination, and the div looks mighty tenuous.

 

[StevieV]

Minimal debt next two years, then avg annual amount maturing is ~$7.5B after that

 

I think that's overly punitive.  They've been borrowing big money at under 4%.  No reason they'd need to retire the debt as it matures.

[Spekulatius]

Why own this when you can own CMCSA? You get better pipes and better management with CMCSA.

 

ATT’s management core competency is to acquire assets and run them into the ground. CMCSA also has its issues, but it is owner operator controlled and over the long run this makes a lot of difference.

[TwoCitiesCapital]

Why own this when you can own CMCSA? You get better pipes and better management with CMCSA.

 

ATT’s management core competency is to acquire assets and run them into the ground. CMCSA also has its issues, but it is owner operator controlled and over the long run this makes a lot of difference.

 

This made me laugh

[LC]

Why own this when you can own CMCSA? You get better pipes and better management with CMCSA.

 

ATT’s management core competency is to acquire assets and run them into the ground. CMCSA also has its issues, but it is owner operator controlled and over the long run this makes a lot of difference.

 

I have asked myself this for sure. I do like the wireless component of T vs Comcast but I agree Comcast’s wired business is superior.

[Spekulatius]

Why own this when you can own CMCSA? You get better pipes and better management with CMCSA.

 

ATT’s management core competency is to acquire assets and run them into the ground. CMCSA also has its issues, but it is owner operator controlled and over the long run this makes a lot of difference.

 

I have asked myself this for sure. I do like the wireless component of T vs Comcast but I agree Comcast’s wired business is superior.

 

It is interesting that both Charter and CMCSA started their own wireless MVNO. I think that’s the low cost way to get into the business and gain scale. They are also bidding for wireless spectrum so at some point they will cut loose from ATT/ Verizon or force them to the table.

[dwy000]

On the flip side, Verizon has started offering 5G at home service which would compete directly with cable internet.  They definitely won't compete on price but where it works it is a highly competitive product.

 

At the end of the day the cable broadband and wireless companies need to merge.

[no_free_lunch]

I certainly appreciate all the feedback.  I cannot buy this right now.  It was really statistics and high yield but I haven't had good luck when I overlook management.

[fareastwarriors]

Garage sale time....

 

 

 

The Second Breakup of AT&T

 

The telecom giant is trying to unwind much of its M&A spree, but finding buyers hasn’t been easy.

 

 

https://www.bloomberg.com/news/articles/2020-11-06/at-t-t-ceo-john-stankey-tries-to-unwind-giant-m-a-spree?srnd=premium