AT&T stock (ticker: T) was up $1.29, to $19.52, on Monday, its first trading day following the spinoff of its 71% stake in Warner Bros.—some 1.7 billion shares—to its holders on Friday. Warner Bros. Discovery (WBD) was off 2.6%, at $23.84.
In electing for a tax-free spinoff, AT&T management appears to have created fresh demand for its shares, particularly from retail investors, who would prefer to own AT&T with its nearly 6% dividend yield than Warner Bros, which pays no dividend and has no present intentions to pay one. With AT&T holders getting $40 billion in Warner Bros. stock, there is a lot of potential demand for AT&T stock.
AT&T’s retail investor base is huge, accounting for an estimated 45% to 50% of its shares outstanding. That is one of the highest percentages for any major company.
The stock also seems to be benefiting from optimism that a refocused AT&T will fare better in the competitive wireless market and some positive Wall Street comments.
J.P. Morgan analyst Phil Cusick resumed coverage of the company with an Overweight rating and a $22 price target on the stock, writing: “A more communications-focused company, AT&T now looks more like
Verizon
than it has in years after shedding the distractions and revenue drag of a declining satellite video business and the capital obligations of the Warner/HBO media businesses.”
Wall Street liked the idea of a split-off, which would have allowed AT&T holders to swap their shares for Warner Bros. stock in a voluntary exchange. This would have amounted to a big stock buyback by AT&T and allowed retail and other investors to hold AT&T without getting any Warner Bros. stock.
The problem with a split-off was that AT&T would have had to offer a financial incentive for investors to make the swap — and that could have been costly.
In an interview at the time of the decision, AT&T’s chief financial officer, Pascal Desroches, said that the company would have needed to offer too big a bonus to incentivize investors to swap their AT&T shares for Warner Bros. Discovery stock in a split-off to make the transaction work. That value “leakage” was too great, he added.
“The amount of discount that we would have to provide—we thought it was a bridge too far. It would have benefited short-term holders at the expense of our large retail shareholder base,” Desroches said.
The good news for AT&T investors who want to sell their Warner Bros. Discovery stock is that their tax basis is based on when they bought AT&T shares, meaning that they can get long-term treatment if the AT&T has been held for at least a year.
The cost basis is roughly 25% of the purchase price of AT&T, since the value of the Warner Bros. Discovery spinoff—a 0.242 share for each AT&T share — was roughly 25% of the value of AT&T stock on Friday.
Since many investors bought AT&T at higher levels, this means investors can sell the Warner Bros. stock to buy AT&T and realize a tax loss that could be used to offset future gains.
New York tax expert Robert Willens says such a transaction does not “run afoul of the ‘wash sale’ rules since the T stock he or she is purchasing is not ‘substantially identical’ to the WBD stock the sale of which produced the loss.”
Write to Andrew Bary at [email protected]
Stock Surge Validates AT&T’s Move to Spin, not Split, Stake in Warner Bros.
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AT&T’s spinoff appears to be popular with its legions of retail investors.
Chris DELMAS / AFP / Getty Images
The 7% gain in
AT&T
shares Monday offers some validation for the company’s decision in February to spin off its big stake in Warner Bros. Discovery instead of pursuing a more complex split-off of that interest.
AT&T stock (ticker: T) was up $1.29, to $19.52, on Monday, its first trading day following the spinoff of its 71% stake in Warner Bros.—some 1.7 billion shares—to its holders on Friday. Warner Bros. Discovery (WBD) was off 2.6%, at $23.84.
In electing for a tax-free spinoff, AT&T management appears to have created fresh demand for its shares, particularly from retail investors, who would prefer to own AT&T with its nearly 6% dividend yield than Warner Bros, which pays no dividend and has no present intentions to pay one. With AT&T holders getting $40 billion in Warner Bros. stock, there is a lot of potential demand for AT&T stock.
AT&T’s retail investor base is huge, accounting for an estimated 45% to 50% of its shares outstanding. That is one of the highest percentages for any major company.
The stock also seems to be benefiting from optimism that a refocused AT&T will fare better in the competitive wireless market and some positive Wall Street comments.
J.P. Morgan analyst Phil Cusick resumed coverage of the company with an Overweight rating and a $22 price target on the stock, writing: “A more communications-focused company, AT&T now looks more like
Verizon
than it has in years after shedding the distractions and revenue drag of a declining satellite video business and the capital obligations of the Warner/HBO media businesses.”
Wall Street liked the idea of a split-off, which would have allowed AT&T holders to swap their shares for Warner Bros. stock in a voluntary exchange. This would have amounted to a big stock buyback by AT&T and allowed retail and other investors to hold AT&T without getting any Warner Bros. stock.
The problem with a split-off was that AT&T would have had to offer a financial incentive for investors to make the swap — and that could have been costly.
In an interview at the time of the decision, AT&T’s chief financial officer, Pascal Desroches, said that the company would have needed to offer too big a bonus to incentivize investors to swap their AT&T shares for Warner Bros. Discovery stock in a split-off to make the transaction work. That value “leakage” was too great, he added.
“The amount of discount that we would have to provide—we thought it was a bridge too far. It would have benefited short-term holders at the expense of our large retail shareholder base,” Desroches said.
The good news for AT&T investors who want to sell their Warner Bros. Discovery stock is that their tax basis is based on when they bought AT&T shares, meaning that they can get long-term treatment if the AT&T has been held for at least a year.
The cost basis is roughly 25% of the purchase price of AT&T, since the value of the Warner Bros. Discovery spinoff—a 0.242 share for each AT&T share — was roughly 25% of the value of AT&T stock on Friday.
Since many investors bought AT&T at higher levels, this means investors can sell the Warner Bros. stock to buy AT&T and realize a tax loss that could be used to offset future gains.
New York tax expert Robert Willens says such a transaction does not “run afoul of the ‘wash sale’ rules since the T stock he or she is purchasing is not ‘substantially identical’ to the WBD stock the sale of which produced the loss.”
Write to Andrew Bary at [email protected]
Source: https://www.barrons.com/articles/stock-surge-validates-at-ts-move-to-spin-not-split-stake-in-warner-bros-51649702644?siteid=yhoof2&yptr=yahoo