- Company Name
- AT&T Inc.
- Stock Symbol
- Class Period
- Purchasers of AT&T common stock between October 22, 2016 and October 24, 2018, and/or persons who acquired AT&T common stock pursuant or traceable to the Registration Statement issued in connection with AT&T’s June 2018 acquisition of Time Warner
- Motion Deadline
- May 31, 2019
- Southern District of New York
The complaint charges AT&T and certain of its officers and directors with violations of the Securities Act of 1933 and/or the Securities Exchange Act of 1934. AT&T is a telecommunications and media company. On October 22, 2016, AT&T announced it had entered into a definitive agreement to acquire Time Warner in a stock-and-cash transaction valued at $107.50 per share (the “Acquisition”).
In June 2018, in connection with the Acquisition, AT&T issued approximately 1.185 billion new shares of AT&T common stock directly to former holders of Time Warner common stock as follows: each former share of Time Warner common stock issued and outstanding immediately before the Acquisition was converted into the right to receive 1.437 shares of newly issued AT&T common stock and $53.75 per share in cash. On June 14, 2018, AT&T common stock was trading at $32.53 per share. Each of these new shares of AT&T common stock was issued pursuant to a Registration Statement, which was declared effective by the SEC on January 6, 2017, and a Prospectus, which was filed with the SEC on January 9, 2017 (collectively the “Registration Statement”).
The complaint alleges that throughout the Class Period and in the Registration Statement, defendants made materially false and misleading statements and/or failed to disclose adverse information regarding the Company’s business, operations and prospects. Specifically, the Registration Statement touted false and misleading financial results, trends, and metrics and omitted material facts that rendered those financial results, trends, and metrics materially misleading. Principally, the Registration Statement touted yearly and quarterly growth trends in AT&T’s Entertainment Group segment, particularly Video Entertainment, including quarterly subscriber gains in its DirecTV Now service sufficient to offset any decrease in traditional satellite DirecTV subscribers, such that AT&T was experiencing an ongoing trend of total video subscriber “Net Additions.” The Registration Statement also purported to warn of numerous risks that, “if” they occurred, “may” or “could” adversely affect the Company, while failing to disclose that these risks had already materialized at the time of the Acquisition. In addition, AT&T had substantially increased its prices while discontinuing promotional discounts for its DirecTV Now service, and as a result, DirecTV Now subscribers were leaving (i.e., not renewing) as soon as their promotional discount periods expired, and new potential DirecTV Now customers were unwilling to pay the higher prices and therefore were not subscribing at all. Thus, by the time of the Acquisition, AT&T’s reported “Net Additions” growth trend was already reversing into a severe “Net Loss” trend. As a result of this information being withheld from investors, the price of AT&T common stock was artificially inflated during the Class Period to more than $42 per share.
Then on October 24, 2018, AT&T announced its third quarter 2018 financial results (i.e., the first full quarter after the Acquisition) and revealed, inter alia, a dramatic reversal of its reported total subscriber Net Additions trend. AT&T reported that traditional DirecTV satellite subscriber losses had jumped over 25%, from 286,000 to 359,000, while DirecTV Now subscriber additions had plummeted over 85%, from 342,000 to 49,000, in the third quarter. These diminished DirecTV Now subscriber additions were nowhere close to offsetting the increased traditional satellite subscriber losses. As a result, AT&T’s 80,000 total video subscriber Net Additions in the second quarter of 2018 had reversed into a 297,000 total subscriber Net Loss in the third quarter of 2018. On these revelations, AT&T’s stock price fell $3.93 per share, or nearly 12%, from a close of $33.02 per share on October 23, 2018, to a close of $29.09 per share on October 26, 2018.