Elliott Reveals Multi-Billion Dollar Stake in AT&T, Urges Divestitures

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Activist shareholder firm Elliott Management revealed Monday it’s taken a $3.2 billion stake in AT&T and pushed the carrier to make management changes and divestitures. Elliott’s stake makes it just the sixth-largest institutional owner in AT&T, at a little more than one percent, reports CNN.

Elliott Management is run by billionaire investor Paul Singer, who fought Argentina over its multibillion dollar debt defaults and won, forcing the country to settle with its creditors in 2016. Elliott also owns Italian soccer club AC Milan and bought struggling bookstore chain Barnes & Noble in June for about $683 million.

In a letter to AT&T’s board, Elliott Management partner Jesse Cohn and associate portfolio manager Marc Steinberg, wrote that AT&T’s stock could potentially surge to above $60 a share by 2021 if the company “increased strategic focus, improved operational efficiency” and “enhanced leadership and oversight.” The hedge fund stopped short of calling for CEO Randall Stephenson’s removal, though it did call for the addition of new board members and spent many paragraphs criticizing Stephenson’s decision-making, noted CNBC.

Shares of AT&T rose in trading Monday, to close at $36.77. That compares to Friday’s closing price of $36.25.

Elliott wants AT&T to sell what it considers to be non-core businesses, that it calls “distractions [that] should not be part of the portfolio.” Elliott proposes AT&T discuss spinning off DirectTV, its Mexican wireless business, and several other operations.

AT&T has purchased several large assets over the years, including its $85 billion purchase of Time Warner, which it completed last year after a lengthy court battle with the Department of Justice. “AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner,” the fund said in the letter.

The investor also called for AT&T to buy back more stock, increase its dividend and pay down debt. In response, AT&T said it will review Elliott Management’s perspectives and looks forward to engaging with Elliott. “Many of the actions outlined are ones we are already executing today,” the carrier stated.

AT&T says its board and management team believe that the focused and successful execution of its strategy is the best path forward to create value for shareholders. ”This strategy is driven by the unique portfolio of valuable businesses we’ve assembled across communications networks and media and entertainment, and as Elliott points out, is the foundation for significant value creation,” said the carrier. “We believe growing and investing in these businesses is the best path forward for our company and our shareholders.”

Elliott also criticized AT&T for not focusing enough on its core wireless business. It said AT&T has lost ground in the marketplace to top rival Verizon, as well as T-Mobile and Sprint, which are trying to close their merger. “Verizon took up the premium end of the market, Sprint targeted the low end and T-Mobile was the disruptive innovator. By contrast, AT&T was comparatively static, without clear brand positioning,” Elliott said.

Topping the list of what Elliott considers to be AT&T’s spending missteps, the investor claims that AT&T’s failed attempt to buy T-Mobile in 2011 actually helped strengthen the competitor because AT&T wound up paying a $6 billion breakup fee to T-Mobile and made other important agreements when it walked away from the deal. “AT&T paid the largest break-up fee of all time and provided T-Mobile with a seven-year roaming deal and the invaluable spectrum it needed to develop from a then-struggling competitor into the thriving force it is today,” Elliott said. 

September 10, 2019

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