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Elliott Management takes stake in AT&T and calls for changes

Hedge fund Elliott Management sent a letter to the board of directors at AT&T Inc. (NYSE: T) urging the company to improve its operational performance in order to unlock significant shareholder value.

Elliott disclosed that it holds a $3.2 billion stake in the telecom giant and also stated that it believes the company could reach a value of $60+ per share by the end of 2021, which would represent a 65% upside to the current share price.  

Following the news, AT&T’s shares gained as much as 9% in premarket hours on Monday. The stock pared some of its gains after the opening bell and was up 4% in morning trade.

The letter states that AT&T’s shareholder returns have been disappointing due to strategic and operational setbacks and that the company’s world-class collection of assets are currently priced at historic discounts.

Elliott pointed out that AT&T has underperformed the broader market by over 150% in the past ten years and its total shareholder return has lagged the S&P 500 by well over 100%. It cited the company’s M&A strategy as the reason for the share price underperformance and stated that through a series of deals amounting to nearly $200 billion, AT&T has pushed into multiple new markets.

Elliott criticized the DirecTV and Time Warner deals and said that despite Time Warner being a valuable franchise, AT&T is yet to produce clear strategic benefits from that acquisition.   

Also see: AT&T Q2 2019 Earnings Report

However, Elliott believes that AT&T has irreplaceable assets, enormous earnings power and an ability to win in key markets. It also stated that the ongoing 5G transition gives AT&T an opportunity to win back market leadership aided by its spectrum positioning and network improvements.

Elliott said its plan, termed as The Activating AT&T Plan, would help improve operational discipline. The plan calls for divesting non-core assets, increasing operational efficiency and capital discipline and improving leadership and oversight.

The plan, in total, aims for a 36% adjusted EBITDA margin in 2022, representing 300 basis points of EBITDA margin expansion over the next three years.

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