10:45 AM, Sep 9, 2019 — AT&T (T) shares popped Monday morning after hedge fund Elliott Management disclosed a $3.2 billion stake in the telecommunications giant and said the company’s shares could be worth more than $60 a share by the end of 2021.
Shares of the Dallas-based company were up nearly 4% in mid-morning trading at $37.66.
Elliott said in a statement that AT&T’s shares have underperformed the S&P by more than 100 basis points as the company’s merger and acquisition strategy has entered into new markets in recent years with deals totaling more than $200 billion as its performance has fallen.
“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,” Elliot said.
Still, Elliott said, AT&T “possesses a world class-collection of assets, each with a leading market position, priced today at historically low levels.”
AT&T said in a statement it maintains an open dialogue with its shareholders and will review Elliott’s proposals, adding that “many of the actions outlined are ones we are already executing today.”
Elliott said in its letter to the AT&T board that it “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.”
Elliott said AT&T still hasn’t presented a clear strategy for its Time Warner unit after spending $109 billion to buy the operation. The deal took nearly two years to close and AT&T has owned it for about a year. Elliott said Time Warner is a “strong and valuable franchise today.”
However, Elliott said it’s “cautious on the benefits of this combination. We think that after $109 billion and three years, we should be seeing some manifestations of the clear strategic benefits by now.”
Elliott said AT&T’s acquisition of satellite-TV operator DirecTV has been “damaging” to results. In the years since the deal was announced in 2014, that industry has been under pressure.
“In fact, trends are continuing to erode, with AT&T’s premium TV subscribers in rapid decline as the industry, particular satellite, struggles mightily,” Elliot told the board. “Unfortunately, it has become clear that AT&T acquired DirecTV at the absolute peak of the linear TV market.”
Elliott said AT&T lost leadership in network expansion, losing to Verizon Communications (VZ) as the rival quickly moved to implement 4G LTE, “earning it a reputation for superior network quality, as well as $20 billion of additional wireless revenue.”
AT&T has also lost out in positioning itself in different markets, Elliott said, as T-Mobile US (TMUS) eliminated contracts while providing family plans and unlimited packages while Verizon and Sprint (S) chased the low-end market, and Verizon took the market’s premium end. “By comparison, A&T was comparatively static, without clear brand positioning,” Elliott said.
Elliott said AT&T must shift to execution from acquisition. “Focused execution is now critical given the numerous time-sensitive initiatives across AT&T — including the ongoing 5G rollout, Warner Media direct-to-consumer offering, pay TV stabilization and others — and this sense of urgency is driving our call for AT&T to take action today,” Elliott said.
Meanwhile, President Donald Trump on Twitter praised Elliott’s involvement, saying that AT&T may “now put a stop to all of the Fake News emanating from its non-credible ‘anchors. Also, I hear that, because of its very bad ratings, it is losing a fortune…But most importantly, @CNN is bad for the USA.”
Elliott didn’t mention CNN in its letter to AT&T.
Trump has had a strained relationship with the network, including calling for a boycott earlier this year to force “big changes” at CNN.
AT&T hasn’t responded to Trump’s remarks on Monday.
Price: 37.66 Price Change: +1.41 Percent Change: +3.89