At&T Case

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Selected Topics in Finance ΙΙ Financial Report Nanyang Business School Singapore 20.02.13 Table of content 1. Introduction 3 2. AT&T Background 3 3. Historical Financial Policy 4 4. Principal Problem 5 5. Pre Divestiture Business Risk 5 6. Analysis and Recommendation 6 6.1 The New Capital Structure 7 6.2 The New Distribution Policy 7 6.2.1 Dividend Pay-out 8 6.2.2 Repurchase of Stock 8 6.3 New Investment Plan 9 6.4 Maintaining a Top-Level Credit Rating 9 7. Conclusion 10 * 1. Introduction In this report we will identify business risk that AT&T experienced due to their divestiture in 1982. We will conduct our analysis based on financial concepts, and finally recommend necessary actions that should have been conducted when the company formulated its financial policy in 1983. 2. AT&T Background AT&T was founded in 1876 by Alexander Graham Bell. Prior to the divestiture AT&T had been a force to be reckoned with for over a century within the telephone service industry. Before the divestiture the company served over 80% of the US telecommunications users. The sale of these services took place at their 22 local subsidiaries. AT&T was the largest enterprise in the world with total assets of $137.8 billion and revenue of $58.1 billion. Given the size of the company they had hired a total of 1,060,378 workers. With a total number of 3,055,495 shareholders, where 95.3% held less than 600 shares each. Ever since 1885 AT&T had continued to pay its dividend to the shareholders, they never lowered the payment. The divestiture that AT&T experienced was a result of an agreement of the Justice Department’s antitrust suit against the company in 1982, which required a major rearrangement of AT&T’s capital structure. The agreement lead to several changes in the structure of the company, and

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