Business Decisions

There is a fantasy out there, sometimes referenced by economists and Republican politicians, that businesses are run in a more rational way than governments. In my experience, this is poppycock. The author of this analysis of AT&T's bid for Time Warner agrees:

When word leaked on Friday that AT&T, the wireless carrier that also owns Direct TV and the smallish U-Verse wireline fiber optic service, was preparing to purchase Time Warner, shares of the telecom utility immediately plummeted and those of the media conglomerate soared. . . .

It’s worth taking that initial market reaction seriously. The combined company, if it comes together, may well prove to be a well-managed and profitable conglomerate. But in order to purchase Time Warner, AT&T and its shareholders are going to have to pay a premium over the current price of its stock.

But there’s no reason to believe Time Warner’s shares are undervalued. There’s also no reason to believe useful synergies will flow from combining Time Warner’s portfolio of television and movie content with AT&T’s portfolio of cell towers, satellites, and fiber optic cables.

AT&T’s board and management, in other words, appear to be simply wasting AT&T’s shareholders’ money. What’s in it for them isn’t so much the opportunity to build a great new business as to break out of the dreary reality that their current business is boring. As the leaders of larger conglomerate, they’ll be able to pay themselves higher salaries and hang out with movie stars.

While I know nothing particular about AT&T's management, my experience of business tells me that this is spot on.