AT&T's M&A Fumble Still Leaves CEO With More Wins Than Losses

(Bloomberg) -- AT&T Inc. made an embarrassing lobbying gaffe by hiring President Donald Trump’s personal attorney for help with its $85 billion takeover of Time Warner Inc.

The proposed deal still got slapped with a Justice Department lawsuit, and AT&T Chief Executive Officer Randall Stephenson seemingly got little in return for the roughly $600,000 paid to the firm of lawyer Michael Cohen. He admitted as much in a memo to employees this week, calling the move a giant misstep.

AT&T's M&A Fumble Still Leaves CEO With More Wins Than Losses

“There is no other way to say it -- AT&T hiring Michael Cohen as a political consultant was a big mistake,” he said. To punctuate the mea culpa, AT&T parted ways with Bob Quinn, its chief lobbyist.

For the largest U.S. phone company -- with $160 billion in global sales and a nearly $17 million lobbying organization -- the move seemed amateurish. And it renewed memories of another high-profile Washington flub. AT&T botched an attempt to buy T-Mobile USA in 2011 and had to pay the biggest breakup fee in U.S. corporate history.

But Stephenson, 58, still has more wins than losses. He’s been one of the most aggressive acquirers in the country, completing 33 takeovers in his 11-year run as CEO. That includes the acquisition of DirecTV for $48.5 billion in 2015.

AT&T’s Evolution

Stephenson transformed AT&T from a collection of regional phone companies into a wireless giant, which then became the biggest provider of pay-TV service in the country. His one major setback -- T-Mobile -- cost him personally $2 million in compensation in 2011 when the deal failed.

Even with AT&T’s Cohen dealings, the company got at least some of what it wanted. In addition to asking for help on the Time Warner deal, AT&T sought guidance on net neutrality and tax reform -- two issues where it ultimately prevailed.

“I don’t see this impacting Stephenson’s continued M&A desires or abilities,” said Kevin Roe, an analyst with Roe Equity Research LLC.

Stephenson’s path to the CEO job began in Oklahoma, where he joined Southwestern Bell in 1982. It was his first job out of college, and he landed it with help from his brother, who still works as an AT&T lineman.

Net Neutrality

Since taking the helm in 2007, Stephenson hasn’t been shy about wading into polarizing issues. Among his leading causes: a call for less restrictive laws on phone network operators, including the removal of Obama-era net neutrality guidelines.

AT&T has been knocked for ham-fisted lobbying efforts before. It had a tradition of sending holiday cupcakes to friends and colleagues in Washington, including regulators at the Federal Communications Commission. The distribution list was obtained by a public-policy group in 2011 and the flap became known as “Cupcakegate.”

The Dallas-based company often had an adversarial stance with the Obama administration, which took a hard line on many deals. Trump ran as more of a pro-business candidate -- and Stephenson became one of his biggest corporate champions.

Trump Tower Visit

In early 2017, around the time AT&T began its contract with Cohen’s firm, Stephenson and Quinn visited the president-elect in Trump Tower. The CEO sung the praises of the new administration, saying he was looking forward to fewer regulations and corporate tax relief.

Trump, though, was no fan of the Time Warner deal. As a candidate, he regularly criticized Time Warner’s CNN unit and threatened to derail any merger.

If Cohen was meant to help change the administration’s view, there are few signs he made progress. FCC Chairman Ajit Pai said this week that he never heard from Cohen.

The Justice Department sued to block the Time Warner deal in November 2017 and only now are the two sides wrapping up their courtroom battle over the merger.

Trump Tweet

Trump himself reiterated his opposition to the merger in a tweet on Friday, complaining that the media wasn’t reporting on his administration’s stance on the deal.

“The Trump Administration’s Anti-Trust Division has been, and is, opposed to the AT&T purchase of Time Warner in a currently ongoing Trial,” he said.

Even with fierce opposition, Stephenson is expected to win the case. That would help cement his legacy and turn AT&T from the one-time Ma Bell into a global media conglomerate.

Paul Gallant, an analyst at Cowen & Co., doesn’t expect the Cohen scandal to affect how the judge rules in the Time Warner case.

“Trying to buy influence, including on mergers, is how Washington works,” he said in a note. “Even if there are legal or ethical issues with AT&T-Cohen, that effort clearly failed.”

©2018 Bloomberg L.P.