Some might suggest this is a knee-jerk reaction to the intentions of an activist investor, though the vulture fund should not be able to claim credit for this one.
AT&T has announced it will sell its wireless and wireline operations in Puerto Rico and the US Virgin Islands to Liberty LATAM for $1.95 billion. The transaction is expected to close in six to nine months, depending on approvals from the FCC and the Department of Justice.
“I’m especially proud of our network and the recent network enhancements that have helped AT&T rank as the fastest network in Puerto Rico,” said Jose J. Davila, AT&T’s GM for the region. “AT&T also has the most coverage on the island, according to Mosaik.
“Our experienced and committed team members will continue to support these operations as we join Liberty Latin America. Liberty Latin America has expressed its commitment to provide high-quality communications services to the people of Puerto Rico and the U.S. Virgin Islands. And we’re confident that it is equally committed to supporting these communities.”
Although pressure is being applied to the AT&T management team by activist investor Elliott Management, this perhaps not a move which would have been seen as attractive. The vulture fund does often approve of asset divestment in the pursuit of increased dividends and a higher share price, but the intricacies of this deal does not add up.
In an open letter to AT&T investors, Elliott Management did call for divestment but only in pursuit of refocusing the business on core activities. In other words, Elliott Management wants AT&T to focus more acutely on connectivity products and services.
Looking at this deal with Liberty LATAM, AT&T is proposing the sale of core connectivity assets but retaining the service and responsibility of FirstNet and DirecTV assets in the region. What is being released and what is being retained does not make sense if this is the influence of Elliott Management. What is more likely is this transaction would have gone ahead irrelevant of outside influences.
“This transaction is a result of our ongoing strategic review of our balance sheet and assets to identify opportunities for monetization,” said AT&T CFO John Stevens.
“But doing so only made sense if we received a fair value from a buyer that is committed to taking this well-run business, with its skilled employees and loyal customer base, and help it thrive. Liberty Latin America has a strong reputation for quality of service, and we believe they have the experience to build on the success of these operations.”
As of June 2019, AT&T’s debt stood at $158 billion, largely thanks to expensive acquisitions in the pursuit of diversification. The team has said it plans to lower its debt by $20 billion over the course of the year. The team now claims to have completed or announced monetization efforts totalling more than $11 billion.
On the other side of the transaction, Liberty LATAM is continuing its quest to reprioritise the business. Following a number of divestments in the European region, the telco has been attempting to gather momentum in the LATAM markets. This is another deal which will improve the position of the firm.
“The combination of AT&T’s leading mobile and wired businesses with Liberty Puerto Rico’s leading high-speed broadband and TV business will create a strong and competitive integrated communications player,” said Balan Nair, CEO of Liberty Latin America.
“At Liberty Latin America, we are focused on investing in digital infrastructure, innovation and 5G networks and on delivering a friendly customer service experience. This transaction is evidence of that, and we are confident that this new combination will be good for our customers and our employees, including those joining us from AT&T.”
Looking at the Liberty LATAM business, the team is certainly not shying away from investments. Aside from this deal, the team also completed the acquisition of the remaining 12.5% of United Telecommunication Services, increasing the presence across several Caribbean islands. In August, the telco also announced aggressive expansion plans for broadband in Chile and was in discussion to acquire Millicom International earlier this year.