CenturyLink Considering A Consumer Spinoff

Shortly after disclosing a poor start to 2019, CenturyLink (CTL) announced that it was beginning a strategic review of its consumer business. The unit represents less than 25% of its overall sales, but it is one of the largest local exchange carriers in the US. It offers broadband and other services to consumers in various markets throughout the US and is one the biggest beneficiaries of the FCC’s Connect America Fund to provide broadband to rural areas.

MoffettNathanson doesn’t think a consumer spinoff makes sense for CenturyLink. The firm recently put out a research report arguing that the dis-synergies created by a spinoff will more than outweigh any potential benefits. Although Frontier sold its local services business for an attractive price, the firm doesn’t think CTL’s consumer business will command a similar premium due to its smaller fiber footprint and its geographic positioning. Additionally, the firm noted that there are serious regulatory concerns regarding a spinoff. The report also raised several regulatory concerns as well. Overall, MoffettNathanson actually likes the upside of the consumer unit.

It seems the company does too. According to Courtney Morton, CenturyLink’s senior communications manager, the company is actually ‘pleased with the performance of our consumer business and are comfortable operating the business for the long term.’ Oh.

So why the review? Ms. Morton goes on to note that the company consistently evaluates its ‘portfolio to identify opportunities where we can drive more value…the strategic review is designed to help us better understand whether there are opportunities to better maximize the value of this asset.’ While they will consider anything that adds value, it’s also ‘really early in the process for us to go into too much detail.’ CEO Jeff Storey emphasized that last point during the quarterly conference call by saying ‘Let me be clear, we’re early in what I expect to be a lengthy and complex process.’

Given that, it’s fair to wonder whether or not these efforts are truly sincere or not. Companies often use ‘strategic reviews’ to distract from short term poor results. While it’s never a bad idea to review operations or to reassess the portfolio, it’s striking how often these ‘reviews’ only come about following poor results.

It sounds like this one might take awhile, but don’t worry; we will be sure to update you if something changes.

Disclosure: Author holds no position in any stock mentioned.