Elliott Management Takes Stake in AT&T, Urges Sales of Some Businesses
Elliott Management says AT&T has the opportunity to be the leader in 5G telecommunications, and should consider selling or spinning off noncore businesses such as DirecTV.
The activist investor says AT&T has the opportunity to be the leader in 5G telecommunications, and should consider selling or spinning off noncore businesses such as DirecTV.
AT&T shares shot up after Elliott Management revealed a $3.2 billion stake in the company, as well as a plan the activist investor says could bring a 65% gain in the stock by the end of 2021.
Elliott Management’s Jesse Cohn and Marc Steinberg wrote in a letter to AT&T’s board that the company is “deeply undervalued,” saying it is inefficiently run compared with rival Verizon Communications (VZ).
“AT&T’s core telecommunications businesses are actually performing well and are well positioned for the future,” they noted. “Unfortunately, the poor results at (the much smaller) DirecTV and general concern about the Company’s ability to execute have obfuscated this otherwise-strong positioning.”
AT&T shares (ticker: T) were up 4.5% at $37.90 in morning trading.
Elliott Management’s plan focuses on “instituting strategic focus and operational discipline,” the activist investor’s letter said. Steps to achieve that goal include divesting non-core assets, reducing operational inefficiency, instituting capital discipline and aggressively reducing debt, and enhancing leadership and oversight.
By doing this, they wrote, “AT&T can improve its business and deliver historic value creation for all stakeholders.” They say the stock could reach more than $60 a share by the end of 2021, prior to what they called strategic actions relating to the portfolio.
Strategic actions generally refer to moves such as buying, selling, or spinning off businesses.
“We look forward to engaging with Elliott,” AT&T said in a written statement. “Indeed, many of the actions outlined are ones we are already executing today.”
The company said the board and management believe that following through on its strategy, which is based on building up its portfolio of businesses in communications, media, and entertainment, is the best way to create value for shareholders.
Elliott said a key aspect of its plan is taking advantage of the transition to 5G, which presents a new chance for AT&T to “reset the wireless narrative and reclaim market leadership” from Verizon.
“AT&T today is in prime position to be the early market leader in 5G given its premier spectrum positioning, early LTE-Advanced work and recent network improvements (driven by the FirstNet build and its one-touch strategy),” they wrote.
They suggested AT&T evaluate selling or spinning off non-core assets, listing its “home security business, regional sports networks, CME, Sky Mexico, Latin American pay TV business (Vrio), Puerto Rican operations and many, many more.”
But it shouldn’t stop there, they added, noting that any review should include “any assets that do not have a clear, strategic rationale for being part of AT&T.” Businesses in that category include DirecTV, the Mexican wireless operations, and pieces of the wireline network, among other assets.
Barron’s argued in a cover story posted after the market closed on March 29 that AT&T’s differentiated business strategy and generous dividend could provide upside compared to Verizon. AT&T stock has since gained nearly 16% through last week’s close, while Verizon shares have fallen 0.1%. And in this weekend’s edition, Barron’s noted AT&T still looked cheap.
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