T AT&T Inc

Stankey to take reins from Stephenson just as new streaming service set to launch

By Drew FitzGerald 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 25, 2020).

AT&T Inc. Chief Executive Randall Stephenson said he will step aside at the end of June, handing leadership of one of the world's largest media and telecommunications companies to longtime deputy John Stankey.

Mr. Stephenson, who turned 60 this week, has spent most of his 13 years as chairman and CEO piecing together a modern media business by scooping up DirecTV and then Time Warner, remaking the telephone company that launched his career.

He had long been preparing to retire at some point this year but in October said he would remain in charge through "at least" 2020 after an activist investor challenged his strategy. After a truce was brokered, the succession planning proceeded, setting the scene for Mr. Stankey to take over just as the company's new streaming service, HBO Max, is slated to launch.

"John will be an outstanding CEO for this company, and I couldn't be more confident or pleased in passing him the baton," Mr. Stephenson said of his successor in a video to AT&T's staff.

Mr. Stankey, like the man he is succeeding, earned his stripes in the telephone business but has been a leading proponent AT&T's hard turn toward entertainment. "The entire industry is in transformation right now and that transformation extends beyond just the business model," Mr. Stankey said in a recent interview. "It's how markets and how corporations operate."

The company next month will launch its new streaming video service built atop its HBO brand, aiming to tear more customers away from competing services, including those of Netflix Inc. and Walt Disney Co.

HBO already benefits from a base of more than 30 million U.S. customers and is expected to grow even in a crowded market for entertainment. But the company is racing against time as the user base for its more traditional satellite-TV and cable video units collapses.

Advertising, another plank of AT&T's strategy, has failed to deliver the explosive growth executives had hoped their new media assets would deliver. The head of the company's ad unit left earlier this year. And AT&T is facing an enlarged wireless rival following the merger of T-Mobile US Inc. and Sprint Corp.

Mr. Stephenson said he will remain chairman until January, when the Dallas-based company is expected to elect an independent chairman. The change was announced at AT&T's annual meeting Friday, which was held online because of the coronavirus pandemic.

His exit comes after the company reached a truce with activist investor Elliott Management, which had been pushing for a strategic review of assets and questioned Mr. Stankey's elevation to heir apparent. Last year, AT&T promoted Mr. Stankey, then the head of its media unit, to No. 2 role as chief operating officer.

After reaching the truce with Elliott, AT&T said Mr. Stephenson would stay at the helm through this year.

Elliott manager Jesse Cohn said on Friday the hedge fund supports the succession move. "We have been engaged with the company throughout the search process," Mr. Cohn said in a statement. "We look forward to working with John as he begins his term as CEO."

AT&T said the leadership change came after a five-month search process overseen by the company's independent board members, which evaluated external and internal candidates. Mr. Stephenson said the board began its succession planning in 2017 and the decision to promote Mr. Stankey was unanimous.

The handoff is the latest in a series of high-profile CEO shifts in recent months as the rise of video streaming blurs the already fading distinctions between the media and telecom worlds. Robert Iger, the longtime leader of Walt Disney Co., stepped aside as CEO in February to serve as executive chairman. Comcast Corp. named Jeff Shell as CEO of NBCUniversal, replacing Steve Burke, who had run the business since Comcast bought it in 2011.

Mr. Stephenson launched his career in 1982 with Southwestern Bell Telephone in Oklahoma, where his older brother also worked as a phone line repairman. The younger Mr. Stephenson has often said he switched his college major of animal husbandry after recognizing what breeding work would entail.

The future CEO rose through Southwestern Bell's financial arm as it swallowed rivals. Mr. Stephenson later became the company's finance chief and in 2007 took the reins of the renamed AT&T.

After regulators thwarted the company's attempt to buy wireless rival T-Mobile's U.S. arm, he looked to media and entertainment in search of growth. In 2015, AT&T closed on the purchase of DirecTV, a $49 billion acquisition that occurred near the peak of the pay-TV market.

Then came the $81 billion takeover of Time Warner in 2018, which the company secured after defeating a federal antitrust challenge. The deal added HBO, CNN and Warner Bros. to the network operator's stable of brands. It also saddled AT&T with more debt, pressuring the company's shares.

AT&T held more than $170 billion of net debt at the end of 2018, making it the most-indebted nonfinancial company in the world. The business has since whittled that down to about $150 billion through asset sales and refinancing.

Cord-cutting has sapped DirecTV, putting greater importance on AT&T's plan for a new streaming service that can compete with Netflix and other new video services. Its pay-TV unit lost another one million subscribers in the March quarter, the company said this week.

President Trump has complained about CNN's coverage of him and his Justice Department tried to stop AT&T's takeover of Time Warner. On Friday, he celebrated the CEO change on Twitter. "Great News! Randall Stephenson, the CEO of heavily indebted AT&T, which owns and presides over Fake News @CNN, is leaving, or was forced out," the president tweeted.

An AT&T spokesman declined to comment on the president's comments. Until recently, Mr. Stankey was in charge of the WarnerMedia unit that includes CNN. AT&T recently hired former Hulu boss Jason Kilar to lead WarnerMedia.

Mr. Stankey, 57, is a company veteran. He started in 1985 at Pacific Telesis Group, another Baby Bell company created by the court-ordered breakup of the original AT&T monopoly in the 1980s. Mr. Stankey spent years working with Mr. Stephenson after its merger with Southwestern Bell. He championed both the DirecTV and Time Warner deals and inherited leadership of each after AT&T acquired them.

"I've worked very closely with John for well over 20 years. I've asked him to take on some of our biggest challenges, and each time he's delivered," Mr. Stephenson said in the video to AT&T's staff.

Mr. Stephenson's tenure set AT&T on a different course than rival Verizon Communications Inc., the other major company formed from the remnants of the original Bell monopoly. Verizon focused much of its investment on building and maintaining its lead in the wireless business and made smaller digital media and advertising acquisitions.

AT&T generated more than $181 billion in revenue last year, most of which came from the company's wireless, internet and TV businesses. In 2007, the year Mr. Stephenson took over, it had about $120 billion in annual revenue and nearly 60% came from its landline arm.

The company is one of the most widely held stocks in the U.S. and one of the most generous in terms of dividend payments. While its phone and internet services are in demand and insulated from the coronavirus pandemic, AT&T warned this week that the crisis is clouding its financial outlook as cash-strapped customers spend less and TV production grinds to a halt.

The company on Wednesday withdrew the financial targets it gave investors in November. It recently secured a short-term $5.5 billion loan to shore up its cash reserves and halted plans to buy back $4 billion of its own stock.

On Friday, Mr. Stephenson said AT&T is committed to paying its dividend, but declined to answer whether the company plans to cut the payment. "We feel like the dividend is very secure," he said during the company's annual meeting. "We're going to continue that dividend."

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

(END) Dow Jones Newswires

April 25, 2020 02:47 ET (06:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.