AT&T CEO On WarnerMedia-Discovery Merger And Dividend Cut
Following is the unofficial transcript of a CNBC interview with AT&T CEO John Stankey on CNBC’s “Squawk Box” (M-F 6AM – 9AM ET) today, Friday, February 4th for AT&T Pebble Beach Pro-Am in Pebble Beach, California. Topics include: AT&T’s decision to spin off WarnerMedia with Discovery, CNN’s Jeff Zucker’s resignation, among others. Following are links to video on CNBC.com:
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CNN’s Jeff Zucker Made The Decision To Resign, Says AT&T CEO John Stankey
AT&T CEO John Stankey Breaks Down WarnerMedia-Discovery Merger And Dividend Cut
BECKY QUICK: Let’s get right to our first big interview of this hour and talk about the news we heard just a little earlier this week. AT&T is spinning off WarnerMedia in a $43 billion transaction to merge its media properties with Discovery. AT&T also is going to be cutting its dividend to $1.11 from $2.08. And joining us right now to talk about this and much more is AT&T CEO John Stankey. John, first of all, great to see you. Thank you for having us here this morning.
JOHN STANKEY: It's good to be here.
QUICK: Let's talk about this news because this is the first time we've gotten a chance to kind of go through this. You decided to do a spin off instead of a split after mulling it over. What pushed you that direction? What, what made you decide that?
STANKEY: Yeah, we did more than mull it. I mean, we studied it and examined it a long time and very carefully and, you know, at the end of the day, I think one of the things that we concluded. We started this transaction because we wanted to drive shareholder value, and we felt that getting the equity structured in the way we did would have the best chance of making that happen. After we went through what would be required to go down the split side well it had really attractive aspects from my point of view, which would be cutting down the share count, which is something over time I'd obviously like to do, the cost of doing it would have taken money out of certain shareholders pockets to execute it. And, you know, look, we have to accept that the markets are smart. I think our shareholders are smart and give them the choice to do what they want to do. And it's a, it's a very clean path to executing. It goes very quickly, which will allow us to complete the transaction in a really rapid period of time, which is good. So, I think by and large, our primary goal was to make sure we just let the market and the shareholder decide where they wanted the value. And look coming out of this, they have a great opportunity. They're going to own two stocks and I think both have great prospects. They're a little different in characteristic as to growth and what they do, but the shareholder can make that decision and getting the upside of what I think is going to be an incredibly strong company Warner Brothers-Discovery, and what David's going to be able to do with that equity and watch it grow and get full fair market value for it will be a good thing for those shareholders who choose to stay in it.
QUICK: The market didn't give a great reaction to the news. It was a 5% drop in the shares on the day of the announcement. Is that because the dividend cut to 1.11 from 2.08. Was that bigger than people were anticipating? What do you think happened?
STANKEY: I think there was a little bit of adjustment that went on once the dividend number settled in because as you know, we because we had not decided whether we were going to spin or split we couldn't stay at a dividend number we can only give a range in total payout of what we're going to dedicate to the dividend. So that there was a little bit of an adjustment around that although, my gosh, the yield is still a wonderful yield. You know, it's one of the best in corporate America right now.
QUICK: 8.9% this morning.
STANKEY: So, you know, I think over time, as the fundamentals settle in, we'll see the stock adjust and, you know, if I step back and, and think about what's going to happen over the, there’s going to be a little volatility, there's going to be people picking sides and where they want to go and so we expect there's going to be some days where we see, you know, a little bit of movement, but over time, intrinsic value tends to be recognized by the market. I think there's a lot of intrinsic value.
JOE KERNEN: There were analysts that said they were glad that you went further with the dividend to give you more flexibility and—
QUICK: Pay down debt.
KERNEN: Pay down debt, build out 5G. And they were glad there was that part of the range. They may not be retirees but but but people that are interested in the, and there's people that, you know, some people don't even like dividend paying stocks, so you're somewhere in there where you do have things to do with that money that maybe are better spent with—
STANKEY: That’s exactly the issue, Joe, I mean, we're sitting at this moment where I know Jeff was talking a little bit about what the future is right before I came on. And, you know, when you think about the dawn of conductivity that we're in that's going to enable many of the things that he's addressing and what the future is, our company is the fabric that a lot of that innovation runs on and we believe this is an opportunity for us to invest at a level and drive some improved returns, and I'd much rather be pouring some of that cash back into the infrastructure of this business at returns at a higher level than what we pay out on the dividend. So, it's time to make that transition for this company. And we've got a lot of great opportunities and great assets to actually drive better value.
QUICK: Does that mean you have to change over more of the shareholder base though if it was a lot of retail investors who were kind of counting on a big dividend? What's your ideal—
STANKEY: Look, I expect, I expect the shareholder base will change a bit over time but I don't expect it's going to fundamentally change as I just said I mean we're sitting here at the top of the dividend paying pools so those who want to yield and can still come here and look at it and say that this is a good place to be if that's my motivation. So, I expect we're still going to have a dynamic of an income-oriented investor and a retail base that’s going to be very, very important to us. But I also think we can operate and execute this business better and get some more institutionals back into this stock and, you know, we've got a great story and we're executing in a way that's going to make that happen.
KERNEN: Dorman said you're back to a phone company.
STANKEY: Well, I won't describe it that way. We're, we're back to being a great conductivity company. We're going to be the best broadband company in the United States. And, you know, when I think about that, our focus in doing that we are demonstrating what that strong focus yields. We came off a year where our wireless business added more postpaid net add customers we did in the previous decade. We did our fourth consecutive year of a million plus fiber broadband net ads. You know, we we've done a remarkable job launching a direct-to-consumer product and I think it just demonstrates that we can execute on things that we're focused on.
QUICK: We are here at the AT&T Pebble Beach Pro-Am and all over the course there are big signs that say AT&T 5G. 5G has been something we've heard about for a long time. You all have poured billions of dollars into preparing for this and just before launch time, there were all these problems that popped up with the FAA and airlines saying this is going to cause a problem. What the heck happened? Was the FAA and the FCC not talking?
STANKEY: Well, I think people were talking fine. I believe maybe there wasn't a lot of paying attention to the answers in some cases because probably almost two years ago, the FCC told the FAA, we don't consider your concerns to be valid and you should go back and do the things you need to do to address them. And when we, when we get to the spectrum transitions and we've displaced somebody who's a current occupant and in part of the spectrum band, there's always dynamics that go on. The C band spectrum that we're deploying right now required satellite operators to move satellite services out of the band and they have to change out equipment, plan for that and the FAA knew this transition has been going on for the better part of, you know, 18 plus months. If you look at what's occurred in the last two months, which has been really constructive to work through this issue, there's no reason any of that couldn't have been going on a year and a half ago. And I think maybe in some cases after answers were given, there was a lack of urgency around responding to the things that needed to be done to adjust to the fact that there was going to be a new neighbor in this part of the spectrum ban.
QUICK: A lack of urgency taken on by the FAA? By the, by the plane manufacturers?
STANKEY: Industry in general, need to plan for these things and whenever you do this it's your scene right now. It's a combination of things. So by the FAA, expressing what their concerns are, we're doing things to adjust how we operate our networks, and we're doing things about how we engineer and turn up radio levels and, and so we do things to respond to their concerns. They need to do some things to look at equipment that they may have out that needs to be replaced or updated. So those types of things can be planned for, I think we've got a lot of capabilities make that done and when people work collaboratively together, which they're doing right now you solve problems.
QUICK: How long till it's all fixed? How long till it can be rolled out the way you had hoped?
STANKEY: You know, I'm not, I'm not an aeronautical expert or an aeronautical engineer. And I can only tell you what I hear from, you know, partners on the other side of the aisle. They they're going to have to probably at some point in time, look at certain equipment that they have in planes and maybe upgrade it or change it and that could be a longer cycle. In the meantime, I think many of the mitigation factors that we've put in place, you know, will allow them to move through that period of time, but I'm, I'm really confident right now, when you look at what's happened over the last couple months, Becky, you know, we're all turning up more cell sites, we’re able to move in closer to the airports because confidence level is now up that there is no threat as we said, when we started this whole process. And so, I think the general public is going to get the service they need to get and be able to fly safely as we said they could do.
KERNEN: Hey John, you’ve been at the company a long time. You weren't necessarily making some of the primary decisions about moving into media and, you know, we also talked about how many things AT&T has been over the years. It's really staggering, depending on which CEO you're talking about that would occur. See Michael Armstrong and so I asked David was it, were there regulatory delays that caused that strategy of becoming a content, more of a content producer that caused that not to work out it was a flawed strategy, was it a flaw from the beginning? Did times change in terms of where the company should have been heading or how do you how do you view it? What, what really happened?
STANKEY: No, it's a fair question, Joe. And I think maybe we may even need a little bit more time and a postmortem to reflect and fully understand, you know, exactly what went through but I will tell you this. I mean, certainly I think we could be a year, maybe 18 months further along than the great success we've already had in taking the media asset and repositioning it for the future and there's been some incredible work done. At the time of the close of that transit, Time Warner transaction, we basically had three separate companies operating under one corporate umbrella and I'm really proud of the team, what they've been able to do. Jason's done a very nice job over the last year and a half, two years to bring those three companies together to operate as one and give that media asset a really bright future. And I think David will probably spend a little bit of time talking about that and so as as a result of that, when I step back and think about where we are, sure the delay created a problem because being another year down the road despite the great success and almost 74 million direct-to-consumer customers, you look at customer satisfaction and what we got out of this year and the positioning of what we've been able to do in the market, there's great momentum. I think about if we were 12 months back on that, they're probably a different mindset and view on that. However, the investor base is also said when you look at the investment characteristics and the return characteristics of the two businesses, we'd actually prefer this—
KERNEN: For you personally, did you were there some nights where you're like, I need to do this. Was it a tough decision to make? Did you—
STANKEY: It was an incredibly difficult decision.
KERNEN: And you'd agonized over it for a while? How long did it did it take you? I know you as a good guy I mean, what was it something you had to, how long did it take? Was it a matter of weeks when you said, okay, I gotta do this?
STANKEY: No, it wasn't a matter of weeks. It was very carefully considered over a longer period of time and it is a very difficult decision. Look, it's a difficult decision to put shareholders through. It's a difficult decision personally when you think about relationships you have with folks, I am incredibly proud of what the team has done. I would very much like to be around for the final chapters of that ride when I see them conquer the path that they've set out for themselves on. I'm not going to have the luxury to do that. But you know, David's going to be a great steward of that. He's going to take it forward. So, it's not been easy, but we're going to get to a really good place.
QUICK: John, the other big headline this week is Jeff Zucker stepping down from the head of CNN because of an undisclosed relationship with a coworker. There's been so much media speculation about what happened, how the decision was made, was this something that Jeff decided to do? Was this something that Jason Kilar decided, was this your decision that he go?
STANKEY: Well look, Jeff resigned and the decision to resign was Jeff’s decision and it's an unfortunate set of circumstances and nobody as hard as the decisions that we just talked about with Joe are, these are the hardest decisions. They’re always difficult anytime you get involved in a personnel situation and, and I know that Jeff had a tremendous following within CNN and there's a lot of people who are incredibly loyal and supportive of him, and that makes it hard for those individuals. However, you know, when I step back and think about what Jeff's been able to accomplish over nine years, you can't take that away from him. He's been a very strong leader at CNN. But there's a lot of people at CNN who make that success possible. And I think even Jeff himself talks about the fact that it's the team that makes a difference there. We've been working really hard at repositioning that asset just like we have the entertainment assets and we're about ready to launch CNN+. The team has been working really hard on this direct-to-consumer offer. It's about ready to come into market. They've got a great product in store. I think it's going to start to drive some innovation. I think the best days of CNN are still in front of it. I think David Zaslav has ideas around where he wants to take the asset and what he wants to do as a result of that. And you know, there's still—
KERNEN: Sorry to interrupt but I did read all this scuttlebutt John and it almost reminds me of is it the cover up or the crime because they’re saying that consensual relationships between adults should be fine, but there was a time when he could have disclosed it and I guess that's what people are pointing to at the bylaws of the company made it mandatory that you can't stay once that happens. And then I'm wondering, you know, I see some of the comments John Malone has made about CNN, and I'm wondering whether there's behind the scenes, even other things in play for whether he was out anyway, regardless of that, and this was a way to do it. I mean, just being really honest.
STANKEY: Joe, I'm not going to speculate on your theory.
KERNEN: No matter how I ask the question.
STANKEY: No, it's not going to matter look, I've always had a practice of not commenting on personnel situations and I don’t intend to do that here.
KERNEN: Bet I don’t get it from Zaslav either but I’ll try I guess. I bet he's got a great answer already regardless of how I asked him. We asked the question, but it's a touchy subject.
QUICK: Andrew has a question as well.
ANDREW ROSS SORKIN: Yeah. Hey, John. We're running a banner here that says Jeff Zucker made the decision to resign based on what you just said. However, Jason Kilar was recorded having a conversation with the staff at CNN in Washington where it was clear that it was not Jeff Zucker’s decision and in fact, not only was it not as decision when he was he was effectively pushed. He apparently wanted to stay for another week or two or three and was told he couldn't. So, can you just, just try to square the reality of this? It's he may technically have resigned insofar as he said, I'll resign rather than you technically fire me, but clearly, he was pushed to do this. Can you just speak to that and also speak to the fact that Allison Gollust is still in her job and how you think about the distinction between those two?
STANKEY: Andrew again, first of all, I wasn't involved in any of the discussions in Washington, DC so I can't speak to what was said or what the characterization of it is because I'm not familiar with it. Jason, you know, certainly has his point of view or I'm sure had a conversation. I'm not going to comment on the personnel issues. Allison, her circumstances are different and I don't want to get involved in discussing her situation either.
QUICK: John, I want to thank you for being with us today. Obviously a lot of news to talk about and you still have quite a bit to do today with the course here.
STANKEY: We’ve got a full day in front of us. Thanks for having me here.
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