AT&T Stock Jumps As Elliott Management Acquires $3.2B Stake, Wants To 'Improve Business'

Elliott Management Corporation, one of the largest activist funds in the world with $38 billion in assets under management, has come to the "rescue" of beleaguered AT&T Inc. whose outstanding debt is larger than that of most countries in the world.

Paul Singer, founder and CEO of Elliott Management, on Monday revealed his firm had acquired $3.2 billion in AT&T’s badly underperforming stock. AT&T said it only learned of this massive buy-in last Friday (Sept. 6).

Elliott sent a letter to AT&T’s board of directors suggesting ways AT&T can “improve its business and realize a historic increase in value.” Singer, one of Wall Street’s top hedge fund managers, said his company’s AT&T stock purchase is one of its largest investments ever.

AT&T shares rallied on the news of Elliott’s investment and letter, surging 4.5 percent at one point to its highest price since January 2018. It eventually closed up 1.49 percent to $36.79. The stock opened at $37.82. It closed at $36.25 on Friday.

“The purpose of today’s letter is to share our thoughts on how AT&T can improve its business and realize a historic increase in value for its shareholders.”

It further noted, “Elliott believes that through readily achievable initiatives -- increased strategic focus, improved operational efficiency, a formal capital allocation framework, and enhanced leadership and oversight -- AT&T can achieve $60+ per share of value by the end of 2021.”

The letter pointed out AT&T has been an outlier in terms of its M&A strategy and criticized the firm for assembling a conglomerate with its recent acquisition of Time Warner that loaded it up with more debt it now has trouble repaying.

“While it is too soon to tell whether AT&T can create value with Time Warner, we remain cautious on the benefits of this combination,” said the letter.

Elliott warned “AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner.”

It believes 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’s recent operational underperformance.”

AT&T responded to Elliott’s letter with diplomacy, saying its management team and Board of Directors “maintain a regular and open dialogue with shareholders and will review Elliott Management’s perspectives in the context of the company’s business strategy.”

“We look forward to engaging with Elliott. Indeed, many of the actions outlined are ones we are already executing today,” said AT&T 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 long-term value for shareholders.”

AT&T, which is groaning under a massive $171 billion debt load, is nevertheless preparing to defend itself from what it sees is a probable takeover bid by Elliott. It’s hired Goldman Sachs to defend itself against the hedge fund, which is one of the 10 largest in the United States.

Analysts said Elliott’s buy-in might also mean AT&T CEO Randall Stephenson is likely on his way out. Elliott has criticized Stephenson’s M&A strategy, which it says is aimed at building an outdated conglomerate.

Elliott Management is already pushing AT&T to sell assets, including its DirecTV satellite service and its Mexican wireless operations. Sources at Elliott believe AT&T will see things its way and settle soon, which are hints taken by some analysts to mean Elliott will demand a major management reshuffle at AT&T.