One of the biggest pieces of news this week has been the revelation by Elliott Management of the purchase of a $3.2 billion stake in AT&T.
It’s said that CEO Randall Stephenson’s value destroying ambitions left the company wide open for an activist (ref WSJ). Apparently, Paul Singer and his activist fund were drawn to the investment (and change) possibilities at AT&T after years of poor deal-making by Stephenson and a languishing share price. When Stephenson took over as CEO, Apple’s first iPhone had just been released and his first decision was a good one: to make wireless the cornerstone of the company’s growth by using the iPhone to gain wireless market share. But the upturn from the iPhone deal eventually faded and the company’s big landline business declined significantly. Then, strategic decisions that Singer has criticized began with the purchase of DirecTV in 2015 as well as the battle to buy Time Warner in 2016. Elliott has been critical of the fact that AT&T has experienced a lack of earnings growth before interest, taxes, depreciation and amortization despite the acquisition spree. AT&T’s shares have produced an 80% return during Stephenson’s tenure; while Comcast shareholders tripled their investment and Verizon gained around 150% (ref WSJ). The Time Warner deal resulted in a remake for AT&T, resulting in a heavy debt load, particularly given Stephenson’s insistence on maintaining the rich dividend. There is speculation that because the company will be going head-to-head with Netflix and Disney while managing both the paying of lenders and rewarding shareholders, there is the possibility that selling off assets and dismantling some of the deals is a real possibility – and will probably be fueled by Elliott. How well those suggestions will be received still remains a question, particularly since AT&T has just named the new heir apparent for the CEO’s position (see recent post).