On Sept. 9, the activist hedge fund announced it had dumped $3.2 billion into AT&T shares, placing the investment among Elliott's largest ever. Now the sixth-largest stakeholder, Elliott plans to jumpstart the $260 billion company by helping it refocus its business model.
In a letter to AT&T, Elliott outlined its turnaround plan—calling attention to what it called the telecom giant's "prolonged and substantial underperformance" that led to removal from the Dow Jones Industrial Index in 2015. An M&A strategy approaching $200 billion in the past decade could be a culprit, Elliott wrote. The firm wants to see AT&T concentrate on its core business operations rather than expand.
Ghosts of acquisitions past
AT&T has long focused on big-ticket purchases, underlining its goal of creating a media empire that reaches far beyond its telecommunications roots. No fan of this strategy, Elliott would like to see AT&T focus on its core phone business. "Most companies today no longer seek to assemble conglomerates," Elliott wrote, citing market trends. The hedge fund pointed to three problematic deals as proof: T-Mobile, DirecTV and Time Warner.
Elliott wrote that "possibly the most damaging deal" in AT&T's recent record was a failed $39 billion acquisition of T-Mobile in 2011, an attempt to consolidate its hold on the US mobile phone market that was ultimately doomed by looming antitrust issues. As a result, AT&T logged a pre-tax breakup fee totaling $4 billion (the largest-ever termination fee for a withdrawn deal). On the flip, T-Mobile exited unscathed with a seven-year roaming deal. The failed takeover provided T-Mobile with the bandwidth to disrupt and thrive—intensifying AT&T's competition.
Next, the hedge fund questioned the 2014 acquisition of satellite TV giant DirecTV for $67 billion. The deal was meant to push AT&T into cable television, then a key market for any media behemoth. However, the purchase of the pay-TV operator coincided with the beginning of the end for the industry, as customers started turning to online streaming alternatives. In the years since, subscriber counts have plummeted by the millions.
Elliott also expressed skepticism of the $85 billion Time Warner acquisition, worth $109 billion when including debt. The deal, announced in 2016 and closed in 2018, marked AT&T's largest acquisition to date. Gains from the costly buyout of the "spectacular" company remain unseen in the hedge fund's eyes.
AT&T's stock slumped significantly during 2017 and 2018, though it began a rebound in January. That two-year drop, which saw the stock price drop nearly 40%, likely sits behind Elliott's decision to get involved.
Answering the call
The criticism did not go unnoticed. Reaching beyond M&A strategy, Elliott disparaged longtime CEO Randall Stephenson and called for the board to consider overall leadership changes. Timing is everything. Just last week, AT&T promoted WarnerMedia CEO John Stankey to the conglomerate's COO.
In a written response, AT&T said it looked forward to working with the hedge fund and would "review" its perspectives. "We believe growing and investing in these businesses is the best path forward for our company and our shareholders," AT&T wrote, defending its acquisition strategy.
AT&T shares (NYSE: T) jumped 4.7% to $37.94 at market open Monday, after news of the investment broke. By end of the day, the stock slid back to $36.79 per share, a roughly 1.4% increase from Friday's close.
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