rallied Monday after Paul Singer’s Elliott Management announced it owns $3.2 billion in the underperforming telecom giant’s stock and said in a letter that it hopes to help the company trim unneeded assets.
The hedge fund said it sent a letter to the company’s board and argued for ways AT&T can “improve its business and realize a historic increase in value.”
The activist investor said its AT&T stock purchase is one of the firm’s largest investments ever. Elliott also believes that AT&T CEO Randall Stephenson’s exit is on the table and thinks that the telecom company will engage and settle soon,
Elliott said the company could eventually be worth at least $60 per share, catapulting the stock up as much as 9% in premarket trading Monday. The stock trimmed its gains after the opening bell, rising 1.4% on Monday to finish the day at $36.77. The stock closed at $36.25 on Friday.
“The purpose of today’s letter is to share our thoughts on how AT&T can improve its business and realize a historic increase in value for its shareholders,” the memo says. “Elliott believes that through readily achievable initiatives — increased strategic focus, improved operational efficiency, a formal capital allocation framework, and enhanced leadership and oversight — AT&T can achieve $60+ per share of value by the end of 2021.”
“AT&T has been an outlier in terms of its M&A strategy: Most companies today no longer seek to assemble conglomerates,” the fund added. “We firmly believe that AT&T’s M&A strategy has not only contributed directly to its profound share price underperformance, but has also caused distractions that have contributed to the Company’s recent operational underperformance.”
The Elliott team raised concerns about AT&T’s recent acquisition of Time Warner in particular, warning that “AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner.
In response to the hedge fund’s letter, AT&T said its management team and Board of Directors “maintain a regular and open dialogue with shareholders and will review Elliott Management’s perspectives in the context of the company’s business strategy.”
“We look forward to engaging with Elliott. Indeed, many of the actions outlined are ones we are already executing today,” AT&T 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.”
“Great news that an activist investor is now involved with AT&T. As the owner of VERY LOW RATINGS @CNN, perhaps they will now put a stop to all of the Fake News emanating from its non-credible ‘anchors,'” Trump wrote. “Also, I hear that, because of its bad ratings, it is losing a fortune … But most importantly, @CNN is bad for the USA.”
Trump has long had a strained relationship with the press, and with CNN in particular. The president earlier this year called for aat its CNN subsidiary, which Trump often accuses of biased and negative coverage.
AT&T’s $85 billion purchase of Time Warner represents one of the largest acquisition in dealmaking history and in general has been applauded by proponents as a solid investment in some of the globe’s top media assets. Critics, however, note that the combined company would be responsible for some $180 billion in debt, a 12% jump from AT&T prior load.
“While it is too soon to tell whether AT&T can create value with Time Warner, we remain cautious on the benefits of this combination,” the letter read. ” We aren’t alone in our cautious outlook — Jeff Bewkes, the CEO who sold Time Warner to AT&T, recently referred to the vertical integration of content and distribution as a ‘fairly suspect premise.'”
In addition to the concerns surrounding debt load and Time Warner, Elliott’s letter makes five key points:
“We’ve been frustrated for a long time with AT&T stock. Like Elliott, in certain parts of the business, we’ve seen the potential there for years,” said Jonathan Chaplin, an analyst at New Street Research. “We just despaired of it ever being captured under this management team with the strategy they’ve deployed up until now.”
“If I was in the corner office of AT&T today, to be honest, I’d be looking at breaking up the company back into its three constituent parts,” he added. “I honestly don’t believe that there are synergies between the wireless business, the TV distribution business and the media business.”
Activist investors like Elliott take stakes in what they believe are undervalued companies and then agitate for change. Such demands can range from mixing up corporate strategy to replacing management teams and board members. Unlike peers, Elliott has the size and influence to buy entire companies instead of pushing for changes as a minority stakeholder.
Elliott has offered to buy multiple companies since founding a private-equity arm in 2015. In 2017, the hedge fundin health-care technology Athenahealth, which in November it agreed to purchase for about $5.5 billion.
Within the past year, sources confirmed to CNBC that it was nearing a deal on a leveraged buyout for $11 billion Arconic.
The firm called its move the “Activating AT&T Plan” saying, “AT&T can unlock significant value by focusing its asset portfolio, improving operational performance, instituting clear capital priorities, and enhancing leadership and oversight.”
September 9, 2019
The Board of Directors
208 South Akard St.
Dallas, TX 75202
Attn: Chairman Randall Stephenson
Attn: Lead Director Matthew Rose
Dear Members of the Board:
We are writing to you on behalf of Elliott Associates, L.P. and Elliott International, L.P. (together, “Elliott” or “we”). Elliott owns $3.2 billion of the common stock and economic equivalents of AT&T Inc. (the “Company” or “AT&T”). The large scale of our investment reflects our deep conviction in the extraordinary value opportunity realizable at AT&T today.
AT&T is unquestionably one of the world’s most important companies and one of America’s proudest technological stories. Nearly 150 years after its founding, AT&T remains a vital steward of global infrastructure, serving more than 370 million direct-to-consumer relationships and employing more than 250,000 people across virtually every country in the world. There is a great deal at stake in ensuring that AT&T realizes its potential – for shareholders, for consumers, for employees, and even for the U.S. as a global telecom leader.
It is through this lens that Elliott approaches its investment in AT&T. Though it is outside the scope of this letter to detail AT&T’s rich and pioneering history, we want to make clear that Elliott has tremendous respect for the Company’s legacy, as well as for the hard work, ingenuity and passion of its dedicated employees, who work tirelessly to ensure our world remains connected.
The purpose of today’s letter is to share…