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    Kunal Garg
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    AT&T, founded in 1876, was the largest telecommunications company responsible for building long-distance telephone lines. In 1974, an antitrust lawsuit was filed which resulted in AT&T splitting into 8 parts in 1984: AT&T and 7 regional "Baby Bell" companies. This was done to address problems of unstable cash flows, unpredictable earnings, and increasing competition. To please stockholders and raise capital following the divestiture, AT&T considered issuing new stock, raising debt, or changing its dividend policy. Ultimately, AT&T decided to maintain a constant dividend per share but only increase dividends after substantial profit increases.

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    FM AT&T

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    AT&T, founded in 1876, was the largest telecommunications company responsible for building long-distance telephone lines. In 1974, an antitrust lawsuit was filed which resulted in AT&T splitting into 8 parts in 1984: AT&T and 7 regional "Baby Bell" companies. This was done to address problems of unstable cash flows, unpredictable earnings, and increasing competition. To please stockholders and raise capital following the divestiture, AT&T considered issuing new stock, raising debt, or changing its dividend policy. Ultimately, AT&T decided to maintain a constant dividend per share but only increase dividends after substantial profit increases.

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    © All Rights Reserved
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    5 views10 pages

    FM At&t

    Uploaded by

    Kunal Garg
    AT&T, founded in 1876, was the largest telecommunications company responsible for building long-distance telephone lines. In 1974, an antitrust lawsuit was filed which resulted in AT&T splitting into 8 parts in 1984: AT&T and 7 regional "Baby Bell" companies. This was done to address problems of unstable cash flows, unpredictable earnings, and increasing competition. To please stockholders and raise capital following the divestiture, AT&T considered issuing new stock, raising debt, or changing its dividend policy. Ultimately, AT&T decided to maintain a constant dividend per share but only increase dividends after substantial profit increases.

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    © All Rights Reserved
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    of 10

    AT&T

    Divestiture
    Ankit Goyal 18103018 1982
    Krish Garg 18103027
    Divyanshu Garg 18103035
    1
    About AT&T
    ● Telecommunication Services
    ● Founded in 1876
    ● By Alexander Graham Bell
    ● Responsible for building long-distance
    telephone lines
    ● World’s largest telecommunication
    company

    2
    AT&T’s Divestiture 1984
    ● Antitrust Lawsuit was filed in 1974
    ● Split into 8 parts: AT&T and 7 other “Baby Bells”
    ● Problem:
    ○ Unstable cash flows
    ○ Unpredictable earnings
    ○ Tackle competition
    ● Strategic Goal:
    ○ Please Current and Potential stockholders
    ○ Raise Capital

    3
    What could have
    1. Issue Stock
    been done?
    2. Raise Debt

    3. Changes in
    Dividend Policy

    4
    Stock Issue
    ● Advantages:
    ○ Direct Capital Raise
    ○ No need of repayment
    ○ No need to pledge assets as security
    ● Disadvantages:
    ○ High flotation cost & time consuming
    ○ Dilution in power and decision making
    ○ Earnings per share decrease

    5
    Raise Debt
    ● Advantages:
    ○ Power remains intact
    ○ Just pay interest and no share in profits
    ○ Relaxation in tax returns
    ● Disadvantages:
    ○ Repayment along with interest payout
    ○ Pledge company’s assets
    ○ Harm the credit rating of the company

    6
    Changes in Dividend Policy
    1. Cut down dividend payout & pay extra dividend at
    the end of financial year
    ○ Can skip extra dividend in bad years
    ○ Affect people dependent on dividends
    2. Give stock dividend instead of cash dividend
    ○ No cash outflow and Reinvestment
    ○ People will have to sell shares when in need of
    the money
    3. Don’t pay dividends at all
    ○ Reinvestment of complete profits
    ○ Share price would fall in short run
    7
    Final Decision

    Uptil 1982, dividend was constantly increased. It was


    70-80% of the total earnings in one year.

    ● Make dividend per share constant


    ● Increase dividend only after substantial increase
    in profit

    8
    References

    ● Case 46 in Cases in Financial Management by Joseph Sulock & John


    Dunkelberg

    http://www.untag-smd.ac.id/files/Perpustakaan_Digital_1/FINANCIAL%20MANAG
    EMENT%20Case%20Studies%20Financial%20Management.pdf

    ● AT&T Divestiture (for further reading)

    https://studymoose.com/att-case-study-essay

    9
    THANK YOU !!

    10

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