Elliott Management Discloses $3B Stake in AT&T

The activist investor believes AT&T is deeply undervalued, citing its "irreplaceable assets, enormous earnings power and an ability to win in key m...
Matthew HellerSeptember 9, 2019

Activist investor Elliott Management announced Monday it had acquired a $3.2 billion stake in AT&T and presented a plan to boost the value of the underperforming company through asset sales and cost reduction.

In a letter to the AT&T board, Elliott said it had made its investment — one of its largest ever — because “we believe AT&T presents as a uniquely attractive business and investment opportunity.”

“AT&T has nearly been abandoned by shareholders, and understandably so,” the letter stated. “However, the truth remains that AT&T has irreplaceable assets, enormous earnings power and an ability to win in key markets.”

Randall Stephenson, AT&T

Elliott recommended, among other things, that AT&T focus on core assets rather than continue to pursue CEO Randall Stephenson’s diversification strategy and improve operational efficiency, predicting that its shares could be worth $60 by the end of 2021.

On news of Elliott’s investment, the stock rose 2.8% to $37.29 in trading Monday.

Entering the week, AT&T had posted a total shareholder return — or stock-price changes plus dividends — of about 20% over the past year, compared with 5.6% for the S&P 500 and 13.5% for rival Verizon.

Elliott was particularly critical of the company’s M&A strategy, saying it had 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.”

“AT&T has yet to articulate a clear strategic rationale” for its “most significant bet,” the $109 billion acquisition of Time Warner, Elliott said.

The fund’s plan calls for AT&T’s adjusted EBITDA margin to increase by 300 basis points to 36% over the next three years, reflecting a net cost reduction of $5 billion. “AT&T should undertake a bottom-up review of its cost structure and begin executing against a multi-year improvement plan,” Elliott said.

Jonathan Chaplin, an analyst at New Street Research, agreed with Elliott’s analysis. “I honestly don’t believe that there are synergies between the wireless business, the TV distribution business and the media business,” he told CNBC.

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