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Elliott takes US$3.2b stake in AT&T, seeks asset sales

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Elliott Management Corp disclosed a new US$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 per cent through asset sales and cost-cutting.

[NEW YORK] Elliott Management Corp disclosed a new US$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 per cent through asset sales and cost-cutting.

The New York hedge fund, run by billionaire Paul Singer, outlined a four-part 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 per cent 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.

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Elliott said the investment - among it largest to date - was made because the company is deeply undervalued after a period of "prolonged and substantial underperformace." 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 US$200 billion in acquisitions, the "most damaging" of which was its US$39 billion attempted purchase of T-Mobile. That deal resulted in the largest breakup fee of all time when it was blocked by the government in 2011 - about US$6 billion in cash and assets.

"In addition to the internal and external distractions it caused itself, AT&T's failed takeover capitalised a viable competitor for years to come," Elliott said.

The hedge fund also criticised the subsequent acquisitions of DirecTV and media 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 per cent 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 US$10 billion but the plan would only require cost cuts of US$5 billion.

Elliott is also calling for a series of governance changes, including separating the role of chief executive officer and chairman - currently held by Mr Stephenson - and the formation of a strategic review committee to identify the opportunities at hand.

BLOOMBERG