Feeling like a chump for hanging onto your AT&T shares? Take solace in the plight of John C. Malone, the former king of cable. The value of the stock he still owns in AT&T has fallen 63 percent this year, to $529.1 million.
Although Malone did not respond to requests for an interview, it would be reasonable to assume that he sometimes second-guesses his decision in June 1998 to sell the cable giant Tele-Communications Inc. for AT&T stock.
Since then two other big cable companies, Comcast and Cablevision, have seen their shares climb — 87 percent for Comcast, a full 151 percent for Cablevision. During that same period, AT&T's stock has lost more than half its value.
But Malone may have had better timing, in light of AT&T's subsequent woes, than the typical investor. A careful tracking of his holdings indicates that Malone sold off roughly 9.7 percent of his AT&T stock, or about 3.7 million shares between March 9, 1999, when the deal was completed and March 17, 1999, when he joined the AT&T board.
Because Malone was not yet a director, he would not have been obliged to report the sale to the Securities and Exchange Commission, and it appears that he did not. Since that initial transaction, he has sold or donated roughly 19.3 percent more of his original stake, according to government filings.
Even so, Malone, together with his wife and the charitable Malone Family Foundation, still holds 27.05 million AT&T shares, or 71 percent of his initial stake in the company. Since the beginning of 2000, the stock has plummeted 63 percent, far worse than even the hard-hit NASDAQ composite index, which is down 35.8 percent. Malone's AT&T stake, which was worth $1.4 billion in January, is now valued at $529 million.
All AT&T shareholders may be impatiently waiting for signs of a payoff from the cable strategy devised by the company's chairman, C. Michael Armstrong. But Malone has clearly taken a tremendous hit, as one of the company's largest individual shareholders. And his other major holding — 100 million shares of
the cable programmer Liberty Media Corp. — has plunged in value 53 percent this year. Malone's Liberty holdings, which were $3.3 billion in January, are now valued at only $1.57 billion. And that is despite abundant benefits Liberty received as a result of AT&T's buyout of TCI.
So vast is the portfolio devastation that it is hard to recall now how good a deal for TCI shareholders the AT&T acquisition once looked — particularly for Malone, who had long been regarded as one of the cleverest dealmakers in the telecommunications business.
On June 23, 1998, the day before AT&T announced it was buying TCI, then the nation's largest cable operator, Malone and his family were believed to own roughly 30.4 million shares of TCI's so-called supervoting shares, a stake worth $1.2 billion.
Nine months later, on March 9, 1999, when the deal was completed, Malone, his wife and the trust swapped TCI holdings for roughly 38 million shares of AT&T, which based on that day's closing price of $57.04 were worth $2.1 billion.
By selling to AT&T, Malone had seemed to nearly double his money. And despite what has happened to AT&T stock in the months and years since, Malone's initial sale, in the week following the deal, certainly looks deft.
That sale would have netted some $200 million based on the share price of about $55 during that period.
By now, Malone appears to have sold or given away nearly 30 percent of his initial AT&T stake — transactions that generated proceeds of about $603 million.
Aside from his initial sale of 9.7 percent of his holdings, Malone has sold about 6.2 million shares for a total of $315 million, or an average price of $50.81 a share, according to filings with the SEC, provided by First Call/Thomson Financial.
He has also given his family's charitable foundation at least 1.5 million shares that were sold for about $90 million, according to the foundation's 1999 tax returns.
In all, Malone's initial $2.1 billion AT&T holding now has an effective value of $1.1 billion, based on transactions totaling $603 million and has a current value of $529 million for the remaining shares. (Unclear in all this is the status of 2 million shares that SEC filings indicate Malone has set aside for charitable gifts, but which still appear to be counted in his current holdings.) As AT&T's stock has swooned, Malone has been active in the board's efforts to help AT&T's chairman, Armstrong, find a remedy. The proposed cure is the complex breakup plan that AT&T announced in October, which includes spinning off the cable business as a stand-alone company.