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