The At&T Restructuring Of 1995 Essay, Research Paper

Wednesday, September 20, 1995, AT&T Chairman and Chief Executive Officer Robert E. Allen announced plans for a strategic restructuring that would separate AT&T into three publicly traded global companies. Robert E. Allen said, “The company was taking this bold step to capitalize on the opportunities in each business’ segment of the global information industry — communications services, communications equipment, and transaction-intensive computing.” Under the plan, a fourth business — AT&T Capital Corporation — would be sold, and AT&T shareowners would hold shares in each of the three remaining companies. “Changes in customer needs, technology and public policy are radically transforming our industry,” said Robert E. Allen. “We now see this restructuring as the next logical turn in AT&T’s journey since divestiture. It will make AT&T’s businesses more valuable to our shareowners, even more responsively to their customers, and better able to focus on the growth opportunities in their individual markets.”

A focus of one of the new companies will be to provide the best communications and information services worldwide. The services company, operating under the familiar “AT&T” brand name, would consist of AT&T’s current Communications Services Group, the AT&T Universal card Services Corporation, the newly established AT&T Solutions consulting and systems-integration organization, and AT&T Wireless Services. The services company plans to create an AT&T Laboratories unit around the core of the Bell Laboratories. “AT&T’s products and systems businesses, along with the world-renowned Bell Laboratories, would constitute a communications systems and technology company that would immediately be the global leader in its industry,” said Robert E. Allen. The communications equipment company would include AT&T’s Network Systems Group, Global Business Communications Systems, Consumer Products, AT&T Paradyne and Microelectronics. The new company named Lucent Technologies, would be a powerful competitor in the fast-growing communications systems market. Henry B. Schacht was designated Lucent Technologies Chief Executive Officer. The company’s computer unit AT&T Global Information Solutions (GIS), would be established as an independent company by spinning it off to AT&T Shareowners. “Our services and systems businesses are at the intersection of tremendous change and opportunity,” said Allen. “This restructuring ensures that each can follow the path of greatest opportunity without worrying about bumping into each other along the way.” Lars Nyberg was announced Chief Executive Officer for NCR, formerly known as GIS, the new computer company. Allen believes Nyberg to be the right leader to get the computer business back on track. Nyberg is taking action to create a smaller, more focused and more rapid business. NCR will continue to develop, manufacture, and market computer platforms for any industry, however, it will focus on the three key industry segments where it has a leading position — financial, retail, and communications. As a major part of its turnaround, NCR will halt the manufacturing of personal computers. It will continue to support and service all its current hardware and software installations and will market its service capabilities to all industries. NCR, which currently employs 43,000 people in more than 120 countries, announced a major cost-cutting initiative that will lead to the termination of approximately 8,500 jobs. AT&T will incur a pre-tax charge of approximately 1.5 billion dollars against third quarter earnings to cover the costs of the NCR restructuring. This reduces the 1995 earnings by 1 billion dollars, or 66 cents per share. AT&T plans to sell its remaining shares of AT&T Capital Corporation to the general public or another company. It holds 80 percent of Capital Corporation’s shares, having only sold a minority of the shares to the general public in 1993. AT&T Capital Corporation is one of the largest equipment leasing and financing companies in the United States. It had revenues of approximately 1.4 billion dollars in 1994. Proceeds from the sale of AT&T Capital Corporation and from the Initial public offering of the new equipment company will be used to repay current AT&T debt and giving excess to each of the new businesses. The company plans to adjust each business’ capital structure to ensure that it has the flexibility to raise resources, as it needs them. AT&T said that each of the businesses it is establishing will have everything it needs to meet its customers’ needs. Each of the new companies already has experienced management and a productive work force. The service, equipment and computer businesses each has the sophisticated systems-integration capabilities necessary to provide complete solutions to its set of customers. And, where it makes sense to partner in serving a customer’s needs, the new businesses could establish commercial relationships with each other. AT&T, which currently has 303,000 employees, said it cannot estimate the exact employment impact of the planned restructuring. All three of the companies will need additional resources to establish themselves as freestanding independent companies; however, each company participates in a highly competitive market and will need to continue to size its operations as efficiently as possible. AT&T said that it is highly likely that the new companies combined will not have as many employees as the present AT&T. The company set up a plan that will ensure that any employees dislocated by the restructuring will have access to job opportunities across the total corporation, as well as to a full range of assistance, ranging from job counseling to retraining.