Another horror day for AT shareholders: the company announced a number of items which in their totality were greeted by the market with a 33% drop for the common equity. Stepping back from the gut reaction of disgust with a long-lasting decline, here is our take on what was unveiled.
Discontinuing Effort to Sell Company
When it was announced earlier this year that the company had retained Goldman Sachs to pursue "strategic options" there was general jubilation: the company was going to be sold, hopefully at a big premium. Well, this is the let down. We can only speculate as to what happened: no offers, low-priced offers, or good offers that were still below the strike price of the options held by management and board. Either way, this is the worst of the announcement.
On the other hand, finally disposing of a CEO who has presided over a steep decline in the company's fortunes must be viewed as positively. Not only is a bad performer gone, but the board has shown a willingness to make a decision that shows a willingness to make changes. We will have to see what caliber person they will be able to attract. The new CEO will likely have a nice option package priced near current market levels. This should give him an incentive to move things an even push offers that are good but not above the strike price of ancient options.
We suspect the dividend cut is behind the majority of the selling pressure on the stock. This is irrational, and indicates that there is still a large contingent of income investors in this name. As we pointed out in our December 31 SA article, this is an asset play. Cutting the dividend should be especially positive for holders of the preferred shares, which nevertheless sold off substantially on Tuesday. The move strengthens the company's ability to invest in small projects with high IRRs and quick paybacks. It will allow better maneuverability with the balance sheet. All things that strengthen the company's ability to make the preferred dividend payments should boost those shares.
We recommended the preferreds last December. Despite Tuesday's selloff, they are up substantially since our recommendation. The current price drop is a good opportunity to top off less than full positions. The common stock is clearly more speculative, but seems cheap in the $2.50 range (see our analysis of Dec 31.) All the steps taken by the company are positive, although the inability (unwillingness?) to sell the company is a disappointment.
Disclosure: The author is long AT.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.