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Here’s why an activist hedge fund wants AT&T to get smaller

Here’s why an activist hedge fund wants AT&T to get smaller
[Photo: Diane Macdonald/Getty Images]

The activist fund manager Elliott Management announced Monday its funds had taken a roughly $3.2 billion stake in AT&T and called for the telecom giant to consider streamlining operations and shedding business units, potentially including DirecTV, to boost shareholder value.

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“Over the past decade, AT&T’s shareholder returns have underperformed the S&P 500 by well over 100 percentage points,” Elliott Management said in a statement. “This share-price underperformance has occurred as AT&T’s M&A strategy has taken it into multiple new markets over a series of deals totaling nearly $200 billion, and as its operational performance has measurably declined. As a result, AT&T today is deeply undervalued, trading at just over half the multiple of the S&P 500—by far its biggest discount yet.”

In an open letter to AT&T’s board members, the fund manager faulted AT&T’s abortive attempt to acquire T-Mobile in 2011, its acquisition of DirecTV at what it called “the absolute peak of the linear TV market,” and its struggles with network capacity after the iPhone’s launch. It also pointed to what it called “deteriorating operational performance” and “bureaucratic organization” within the company.

Elliott called for AT&T to consider selling off assets including DirecTV, Mexican wireless operations, and some of its landline business. And while it stopped short of including the WarnerMedia entertainment business in that list, it said it does “remain cautious” on the benefits of AT&T’s $85 billion acquisition of Time Warner, which closed last June.

“Time Warner is a spectacular company, representing a collection of some of the world’s premier media assets, and it remains a strong and valuable franchise today,” according to the Elliott letter. “However, despite nearly 600 days passing between signing and closing (and more than a year passing since), AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner.”

The letter quickly drew a tweet from President Trump, who opposed the Time Warner acquisition and has long sparred with Time Warner unit CNN over its coverage of his campaign and presidency.

AT&T responded with a statement of its own, saying it’s already following some of Elliott’s suggestions.

“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 long-term value for shareholders,” the company said. “This strategy is driven by the unique portfolio of valuable businesses we’ve 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.”

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