Elliott Management discloses $3.2 billion stake, calls on
company to shed some assets
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 (September 10, 2019).
One of Wall Street's most powerful activist investors is
challenging AT&T Inc.'s ambition to build a media conglomerate
and is pushing the company to refocus on its telecommunications
Hedge fund Elliott Management Corp. disclosed a $3.2 billion
stake in AT&T, criticized its longtime CEO's acquisition
strategy and called on the company to shed some assets. The
investor, which has tangled with Samsung Electronics Co. and the
Argentine government, also suggested that AT&T name new
directors to its board.
The start of a public battle will test shareholder support for
Chairman and Chief Executive Randall Stephenson's plans to remake
AT&T into a media and advertising powerhouse. He has used big
takeovers to add properties such as HBO, Warner Bros. and DirecTV,
and is seeking to compete with Comcast Corp. as well as Netflix
Inc. in the battle for consumers' attention. But the deals have
also left AT&T with more than $160 billion of net debt.
"AT&T has suffered from operational and execution issues
over the past decade, for which the current leadership team is
accountable," Elliott wrote in a letter to AT&T's board and
made public Monday.
AT&T defended its strategic direction and said it will
engage with the hedge fund. "Indeed, many of the actions outlined
are ones we are already executing today," the company said in a
Elliott began laying the groundwork for its campaign last year
when AT&T's shares sagged in the wake of its Time Warner
acquisition, though the firm decided to go public after AT&T
promoted one of Mr. Stephenson's lieutenants to be his likely
successor, according to a person familiar with the matter.
AT&T last week elevated John Stankey, a longtime executive
who advocated for both the DirecTV and Time Warner deals, to be its
president and chief operating officer. He was promoted after
telecom chief John Donovan, who oversaw more than 80% of the parent
company's revenue, announced his retirement after it became clear
he would not succeed the CEO.
Elliott questioned the executive change and asked whether
AT&T conducted an external review for the new No. 2 position.
"Especially given the recent management changes, this is the moment
to determine the right team for the next decade," Elliott
AT&T wasn't given much advance notice of Elliott's plan, and
Mr. Stephenson had yet to meet with its portfolio managers early
Monday, according to people familiar with the matter. AT&T has
a history of making big acquisitions and of choosing its top
managers from within. Elliott criticized both practices in its
Elliott didn't ask AT&T to sell specific divisions but said
the company should review any businesses that don't fit its future
direction, including the DirecTV satellite service and Mexican
wireless operations. The investor added that the company "has yet
to articulate a clear strategic rationale for why AT&T needs to
own Time Warner."
With a market value of more than $260 billion, the Dallas
company is among the hedge fund's biggest corporate targets to
date. Elliott's roughly 1% stake means it will probably need
support from other institutional investors to pressure the
AT&T shares, which have lagged behind the broader market and
some of its peers over the past five years, have rallied in recent
months after starting the year around $30. AT&T shares closed
up 1.5% at $36.79 in Monday trading.
Elliott assailed AT&T management for its nearly $50 billion
purchase of DirecTV in 2015 and said it remains cautious about last
year's roughly $80 billion purchase of Time Warner. AT&T has
replaced most of the leadership at Time Warner as it prepares to
launch a new streaming service.
"AT&T has been an outlier in terms of its M&A strategy,"
Elliott wrote. "Most companies today no longer seek to assemble
The company is the No. 2 U.S. cellphone carrier by subscribers,
trailing rival Verizon Communications Inc., and the top provider of
pay-TV channels just ahead of Comcast. It also owns the Warner
Bros. film studio and cable networks like CNN and TNT.
AT&T said its "strategy is driven by the unique portfolio of
valuable businesses we've assembled across communications networks
and media and entertainment." The company said it would focus on
growing and investing in these businesses.
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 U.S.
Justice Department in 2017 sued to stop the merger, but AT&T
prevailed in court after months of costly litigation.
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 argues the company has
underperformed the market for the past decade and puts much of the
blame on Mr. Stephenson's acquisition strategy.
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
trimming its retail footprint.
The hedge fund predicted that if AT&T pursues the strategic
and operational improvements Elliott suggests, the shares could be
worth more than $60 a share by the end of 2021. 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
Corrie Driebusch contributed to this article.
Write to Drew FitzGerald at email@example.com
(END) Dow Jones Newswires
September 10, 2019 02:47 ET (06:47 GMT)
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