ATT's $5B investment from MSFT
The warrant conversion price is $75/share. Excellent deal in May 1999, but given the closing price of T at $21 5/16 on Friday, I doubt they will exercise those warrants, so they just pissed away $5B.
Prog,
Actually, although I agree with you that the warrants (excercisable within the next 1.5 years for T shares) appear worthless, weren't the warrants a sweetener on top of the preferred shares? Although the warrants may not be exercised, I think MSFT might still have the preferred shares with a face value of $5B. Microsoft may one day get its $5B back.
In the meantime, as you point out, the rate of return on this investment is paltry. (I think the rate of return is actually 5% (quarterly payment of 62.5 cents or $2.50 per year for each $50 preferred share. But I take your point that, if the warrants are worthless, Microsoft in essence could find nothing better to do with its money than invest it at a 5% rate, comparable to May 1999 CD rates.))
The preferred securities, which will have a face value of $5 billion and be priced at $50 per security, will make a quarterly payment of 62.5 cents per security. The preferred securities, which will be convertible into 66.7 million shares of AT&T common stock at a price of $75 per share, will have a maturity of 30 years, and the conversion feature can be terminated, under certain conditions, after three years.
Who knows? The preferred shares could have great value in the next 28+ years? I suspect that AT&T may be radically different by that time. Does not appear that Microsoft can call the $5B preferred share investment until May 2029.
But does anyone know if Microsoft can ask for its $5B back (presumably, under the liquidation preference most preferred shares carry) in the event of the breakup of AT&T into 4 cos.?
Pretty shrewd investment that, for AT&T at least.
On this, I have to agree with you. My original point was simply that WIND correctly does not appear to aspire to be a big, fat company making a series of goofy investments like Microsoft. Growing is good, but not to the point where people convince themselves to chuck $5B out the door without any commitment to use your technology. Apparently, AT&T gave Microsoft nothing more than a 5% rate of return and a "willing ear" for its $5B. AT&T shrewdly did not lock itself into using Microsoft's software. |
