UPDATED with stock movement, Trump comments: AT&T shares rose more than 4% to $37.88 in early trading Monday – one of the stock’s biggest one-day gains in months – after activist hedge fund Elliott Management disclosed a $3.2 billion stake in the telecom and media giant.
The news attracted the interest of President Donald Trump, who took it as an opportunity to take his latest swipe at CNN, noting in Twitter posts its “Fake News” and “non-credible ‘anchors’ ” and saying the cable news network is “losing a fortune” and “bad for the USA.”
Citing a lack of strategic focus at AT&T, Elliott bought the small slice of the company, whose market value is about $260 billion, in order to advance a plan it has dubbed “Activate AT&T.” If management follows its set of recommendations, Elliott said in a letter to the AT&T board, the company’s share price will trade north of $60 by 2021.
While AT&T shares have gained steady ground in 2019 to date, over the past several years they have largely moved sideways. In a press release, Elliott said AT&T stock has underperformed the S&P 500 by 100 percentage points over the last decade.
Elliott made news recently in a media-adjacent sector, buying Barnes & Noble for $475 million in cash and planning to transform the bookseller to make it more competitive with Amazon. It also had accumulated shares of advertising giant Interpublic, though it exited that position in 2017.
The $81 billion acquisition of Time Warner ($109 billion including debt) was one of the main issues cited by Elliott in the letter. Time Warner, since rebranded as WarnerMedia 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,” the letter said. “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. 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. We think that, after $109 billion and three years, we should be seeing some manifestations of the clear strategic benefits by now.”
AT&T has recently undergone a major change in the executive suite, with John Stankey getting a major promotion from head of WarnerMedia to Chief Operating Officer of the entire company. John Donovan, who led the Communications unit, decided to retire. Stankey is seen as the heir apparent to CEO Randall Stephenson.
“What has attracted our attention, as well as the attention of other shareholders – from large institutions to individual AT&T employees – has been the prolonged and substantial underperformance of AT&T as an investment relative to its potential,” the letter said.
(Read the full letter here.)
Activist investors have long trained their eyes on the media space and often kick up a lot of dust regardless of the ultimate outcome. AOL Time Warner tangled for years with Carl Icahn, who took aim at the company and looked to force change from within before reaching a truce when management when he couldn’t sway the board. Sony investor Daniel Loeb, through his Third Point Capital, has similarly railed against Sony’s strategy, which he described in his latest letter in June as overly complex.