T AT&T Inc

By Drew FitzGerald 

Activist investor Elliott Management Corp. disclosed a $3.2 billion stake in AT&T Inc., criticized the company's strategy and called on the telecommunications giant to shed unnecessary assets.

The New York hedge fund wrote in a letter to the company released Monday that it would seek seats on the company's board and challenged AT&T to sharpen its focus on its core assets, including its relatively healthy wireless business.

The fund didn't ask AT&T to sell specific divisions but said the company should review any assets that lack a strategic rationale, including the DirecTV satellite service and Mexican wireless operations.

With a market value of more than $260 billion, the Dallas company is among the hedge fund's biggest corporate targets to date. AT&T shares rose 4% to $37.80 in Monday morning trading.

Elliott assailed AT&T management for alleged missteps including the purchase of DirecTV and said it remains cautious about last year's purchase of Time Warner Inc., a collection of TV and film businesses including HBO and CNN that was renamed WarnerMedia.

"AT&T has been an outlier in terms of its M&A strategy," Elliott wrote. "Most companies today no longer seek to assemble conglomerates."

AT&T said it looked forward to engaging with the hedge fund.

"Indeed, many of the actions outlined are ones we are already executing today," the company said in a statement. "AT&T's Board and management team firmly believe that the focused and successful execution of our strategy is the best path forward to create long-term value for shareholders. This strategy is driven by the unique portfolio of valuable businesses we've assembled across communications networks and media and entertainment."

AT&T Chief Executive Randall Stephenson has reshaped the company in recent years by buying DirecTV and Time Warner, making it one of the biggest U.S. media players. The deals left the company with more than $170 billion in net debt at the end of 2018.

President Trump, a frequent critic of CNN, weighed in on the news, tweeting: "Great news that an activist investor is now involved with AT&T." As a presidential candidate in 2016, Mr. Trump vowed to block AT&T's takeover of Time Warner. The Justice Department filed an antitrust suit to stop the merger, but AT&T prevailed in court.

Elliott, founded by billionaire Paul Singer, is one of the biggest activist investors. Last year, the hedge fund launched the equivalent of nearly one new public activism campaign every two weeks, pushing for change at companies around the world including Sempra Energy, Nielsen Holdings PLC and Pernod Ricard SA.

In its AT&T letter, Elliott said the company has underperformed the market for the past decade and put much of the blame on Mr. Stephenson's acquisition strategy.

"AT&T has transformed itself into a sprawling collection of businesses battling well-funded competitors, in new markets, with different regulations, and saddled with the financial repercussions of its choices, " the fund said.

In addition to asset sales, Elliott called on AT&T to boost its profit margins by cutting at least $5 billion in costs, including outsourcing some functions, consolidating offices and rethinking its retail footprint.

"While unsurprising for a former regulated monopoly which many still liken to the federal government, AT&T suffers from a bureaucratic organization," Elliot said, arguing that AT&T's wireless profits have fallen further behind rival Verizon Communications Inc.'s.

The challenge to the company's strategy comes less than a week after AT&T named longtime executive John Stankey to its newly created chief operating officer position, a move widely seen as preparing him to eventually succeed Mr. Stephenson. Mr. Stankey remains in charge of WarnerMedia and previously served as AT&T's strategy chief.

Elliott questioned the executive change and asked whether AT&T conducted an external review for the new No. 2 position.

The fund predicted that if AT&T pursues the strategic and operational improvements Elliott suggests, the shares could be worth more than $60 by the end of 2021.

AT&T shares closed Friday at $36.25 and have rallied in recent months after starting the year around $30.

Entering the week, AT&T has posted a total shareholder return -- or stock-price changes plus dividends -- of more than 20% over the past year, compared with 5.8% for the S&P 500 and 14% for Verizon.

Over the past five years, AT&T has posted a total shareholder return of 6.6%, compared with 10.7% for the S&P 500 and 8.8% for Verizon.

Shares hit a multiyear low of $27.36 in December as investors questioned whether its heavy debt load was sustainable. The company has spent the past year shoring up its balance sheet, partly through sales of assets such as its stake in streaming service Hulu and its ownership of WarnerMedia's new Manhattan headquarters.

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

(END) Dow Jones Newswires

September 09, 2019 10:10 ET (14:10 GMT)

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