Hedge fund acquires $3.2 billion stake in AT&T, seeks asset sales
Elliott Management Corp. disclosed a new $3.2 billion position in AT&T Inc., taking on one of the nation’s biggest and most widely held companies with a plan to boost the telecommunications giant’s share price by more than 50% through asset sales and cost-cutting.
The New York hedge fund, run by billionaire Paul Singer, outlined a fourpart plan for the company in a letter to its board Monday. The proposal calls for the company to explore divesting assets including satellite-TV provider DirecTV, the Mexican wireless operations, pieces of the landline business, and others. It urges AT&T, led by Chief Executive Officer Randall Stephenson, to exit businesses that don’t fit its strategy, run a more efficient operation and stop making major acquisitions. Elliott said it would also recommend candidates to add to AT&T’s board.
AT&T shares surged as much as 7.8% to $39.09 in early trading. If those gains hold into regular trading, it would be the highest the stock has reached since early 2018.
An AT&T spokesman had no immediate comment.
Elliott said the investment — among its largest to date — was made because the company is deeply undervalued after a period of “prolonged and substantial underperformance.” It argued this has been marked by its shares lagging the broader S&P 500 over the past decade. It pointed to a series of strategic setbacks, including $200 billion in acquisitions, the “most damaging” of which was its $39 billion attempted purchase of T-Mobile US Inc. That deal resulted in the largest breakup fee of all time when it was blocked by the government in 2011 — about $6 billion in cash and assets.
“In addition to the internal and external distractions it caused itself, AT&T’s failed takeover capitalized a viable competitor for years to come,” Elliott said.
The hedge fund also criticized the subsequent acquisitions of DirecTV and me
dia giant Time Warner Inc.
While the position in AT&T is large, Elliott may have a difficult time pushing for change unless it gets other investors to back its stance. Its newly disclosed stake in AT&T represents just about 1.2% of the company’s total market value.
Elliott’s plan also calls for aggressive cost-cutting measures that aim to improve AT&T’s margins by 3 percentage points by 2022. Elliott said in the letter it has identified opportunities for savings in excess of $10 billion but the plan would only require cost cuts of $5 billion.
Elliott is also calling for a series of governance changes, including separating the roles of CEO and chairman -- currently held by Stephenson — and the formation of a strategic review committee to identify the opportunities at hand.
With a series of deals over the past several years, AT&T has transformed itself from a traditional telecom company into a multimedia behemoth. The company bought satellite-TV provider DirecTV for $67 billion in 2015, leaping into first place among U.S. pay-TV companies. Elliott criticized that deal in its letter as having come “at the absolute peak of the linear TV market.”
AT&T then moved firmly into entertainment and media with the $85 billion acquisition of Time Warner Inc. in 2018. That deal brought marquee assets such as HBO, CNN and Warner Bros.
AT&T is the most indebted non-financial and non-government-owned company in the world, with $194 billion in total debt as of June, a legacy of Stephenson’s steady clip of large acquisitions. The CEO used to keep a spreadsheet of a few dozen companies that he studies on his tablet to plan his next big deal, people familiar with the matter told Bloomberg in 2016.
President Donald Trump, whose Justice Department unsuccessfully opposed AT&T’s Time Warner acquisition and who has criticized CNN’s coverage of him, tweeted Monday, “Great news that an activist investor is now involved with AT&T.”