AT&T and U S WEST scored points with investors, but PacTel's AirTouch deal failed to move the market.ell before the Telecommunications Act of 1996 was signed, it had become abundantly clear to telephone companies that they would need to change their organizational or corporate structures to keep pace with the changing business and regulatory climate.
The question, however, was how to make that structural change pay off on Wall Street (em how to use the reorganization to attract attention in the market and thus secure a financial reward for both stockholders and customers.
One option (em a structural separation of regulated from unregulated business segments (em would appear logical and might even boost efficiency by allowing managers to focus separately on each segment of the business. For example, a separation into business segments would arguably concentrate asset groups with similar earnings, dividend, and risk characteristics (em more so than if the parent firm continued to hold both regulated and unregulated segments. Moreover, the separation of assets into concentrated groups may help solve problems related to dividend policy. (Payout ratios appropriate for a regulated, slow-growth monopoly make less sense for a competitive firm, which must retain a higher proportion of its earnings.)
If a structural separation is deemed appropriate, then the choices come down to 1) a spinoff of the unregulated from the regulated business, or 2) the issuance of targeted stock, which allows trading of isolated equity for the particular, targeted business segments, but maintains a unified management structure.
Here, we analyze the impacts of the separations that have occurred recently (spinoffs and issues of targeted stock) to determine their impact upon shareholders and