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AT&T Could Win in 5G, but Needs an Overhaul First, Activist Investor Says

Mike Dano
9/9/2019
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AT&T is in "prime position to be the early market leader in 5G," argued the company's new, sixth largest shareholder. But to take advantage of that opportunity, AT&T must overhaul its front-office management, shed unneeded businesses and cut costs, the investor added.

That controversial position comes from Elliott Management, the activist investment company founded by billionaire Paul Singer that said it recently purchased a $3.2 billion stake in AT&T. As The Wall Street Journal noted, the firm has previously taken an activist stance against companies ranging from Sempra Energy to Nielsen Holdings to Telecom Italia. In a public letter to AT&T shareholders issued Monday, Elliott Management blasted many of AT&T's recent corporate adventures, from its failed attempt to acquire T-Mobile to its recent purchase of Time Warner.

"We firmly believe that AT&T's M&A strategy has not only contributed directly to its profound share price underperformance, but has also caused distractions that have contributed to the company' recent operational underperformance," the firm wrote.

Importantly, Elliott pointed out that Verizon -- which has mostly avoided massive corporate acquisitions -- has managed to turn in a much more favorable financial performance, particularly in the wireless sector. "Verizon pursued the opposite path by reducing its wireline footprint and doubling down on the strong wireless market," the firm wrote. "AT&T's wireless service EBITDA margins have always been lower than Verizonís, but last year the gap in service EBITDA margins increased to ~1,500bps on a comparable basis with historical periods, the largest discrepancy to date and a substantial difference in profitability."

As Bloomberg noted, Elliott Management now owns around 1.2% of AT&T's total market value, and Wall Street appeared to cheer the firm's move against AT&T by sending AT&T's shares up around 5%, to the stock's highest level since February of 2018. However, Bloomberg acknowledged that Elliott Management may have a difficult time pushing for change unless it gets other investors to back its stance.

AT&T, for its part, wrote that "we look forward to engaging with Elliott. Indeed, many of the actions outlined are ones we are already executing today," the company said in a statement. "AT&T's Board and management team firmly believe that the focused and successful execution of our strategy is the best path forward to create value for shareholders. This strategy is driven by the unique portfolio of valuable businesses weíve assembled across communications networks and media and entertainment, and as Elliott points out, is the foundation for significant value creation. We believe growing and investing in these businesses is the best path forward for our company and our shareholders."

President Trump also stepped into the issue, writing on Twitter that it's "great news that an activist investor is now involved" with AT&T. Trump also tied the topic to AT&T's ownership of CNN, and he reiterated his general opposition to the news channel and its coverage of Trump's administration. CNN just this morning reported that US intelligence officials extracted a covert source in Russia partly over fears that Trump could expose the spy.

ó Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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Clifton K Morris
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Clifton K Morris,
User Rank: Light Sabre
9/10/2019 | 8:00:00 AM
Risky hedge fund trying to cover the risk of other bad investments..?
Risky overseas-based hedge fund must be trying to hedge risk of other risky investments- itís all positioning to cover their other risky investmentís spread. Elliott has a rich history of appointing new BoDs at companies like Enron, MCI, and Worldcom. With that sort of background, Iím sure they have the best interest of shareholders, customers and employees at heart.

Wireless services cost $17-20/month for unlimited (50-75Gb) from most providers across Europe. Apple even saw this disparity in pricing several years ago when it started making eSIM and SIM standard features. Seems someone at Elliott didnít get the memo or was invited to the Apple product launch event, and thatís just sad. 😢
James_B_Crawshaw
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James_B_Crawshaw,
User Rank: Blogger
9/9/2019 | 5:20:06 PM
Re: Elliott raises good points
Good points Duh! I agree that expanding into tangential businesses through M&A can lead to value destruction. But sticking to one's knitting may not be a good strategy either if knitting is morphing into crochet or bingo. There needs to be an eye on the future if the company is to survive another 135 years. It is probably not TV though ...
Duh!
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Duh!,
User Rank: Blogger
9/9/2019 | 3:57:29 PM
Elliott raises good points

Thought experiment: imagine being the fly on the wall in a company-wide ops review. Is everybody fully engaged? Are the questions pertinent and insightful, or are they confused and uninformed? How many execs nod off during portions of that meeting unrelated to their businesses? How many squabbles are there over things like relationships with competitors and transfer pricing? Are there culture clashes? How many executive-hours does it consume?

Can they answer the question "What does your company do" in less than 30 seconds?

"Stick to your knitting" is still a good business strategy. It's a shame that they need an activist shareholder to tell them that.

 

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