UPDATED with closing price. Shares in AT&T, which have woken up in recent weeks amid pressure from activist hedge fund Elliott Management, reached their highest level in nearly two years after the company issued a new financial outlook.
After reaching $38.86, its highest point since December 2017, the stock closed Monday at $38.49 on twice normal trading volume. Shares have been largely flat since the company first proposed taking over Time Warner more than three years ago.
The company’s updated road map included several strategic initiatives recommended by Elliott, including an infusion of new blood on the board of directors and a pause of “meaningful” acquisitions. Elliott has criticized the big-ticket purchases of DirecTV and Time Warner, deals that left the company with $170 billion in debt as 2019 began. Randall Stephenson will remain CEO through at least 2020, and down the line the chairman and CEO titles will be separated.
In its three-year financial guidance, AT&T also said it will have retired all of the debt it incurred in the $81 billion Time Warner deal.
During a conference call with investors to discuss third-quarter results and the new three-year outlook, Stephenson said the company has “no sacred cows” in its portfolio. DirecTV, which contributed the lion’s share of the eye-popping 1.4 million pay-TV subscriber losses in the quarter “has been the source of a lot of public speculation” as to possible M&A, Stephenson acknowledged.
DirecTV, Stephenson went on to say, “will be an important piece of our strategy over the next three years, but no portion of our business is ever exempt from a continuous assessment for fit and performance.” Multiple options for the satellite distributor will be considered, the CEO added, including partnerships. An alliance with another entity (Wall Street analysts have speculated about Dish Network or private equity investors stepping in) in a bid to reduce costs could well be in the cards for DirecTV. But Stephenson pointed out that the satellite operator still throws off significant cash — about $4 billion in free cash flow per year, in fact.
Stephenson said the level of subscriber losses in the quarter is “the peak,” and the numbers should get “significantly better” in the fourth quarter and beyond. Carriage disputes with major programmers like Nexstar and CBS in the period took a particular toll, he said.
While most of the bullish investor reaction Monday was to the company’s updated financial guidance and strategic direction, the market appeared to be delivering an initially upbeat view of HBO Max. The company said it expects 50 million subscribers in the first five years of operation.
Stephenson repeatedly emphasized the fit with HBO Max and the wireless and pay-TV systems of AT&T, which are by a wide margin the largest linear distributors of HBO. The new subscription service, which will be unveiled to investors in a major presentation Tuesday on the Warner Bros. lot, is a “natural bundle” with the broadband and pay-TV offerings of AT&T. “We’re really bullish about how HBO Max gets leveraged across the footprint,” he said.