Change is in the air at AT&T, so what’s an investor to do?
Paul Singer’s Elliott Management sent a letter to the company’s board announcing it owns $3.2 billion in AT&T (T) stock and predicts the telecom giant could be worth at least $60 a share by 2021.
That vote of confidence from one of the country’s top activist shareholders sent shares of AT&T up more than 2.5% to about $37 a share.
But that big investment doesn’t come without some big demands.
Elliott wants AT&T to spin off or sell some of its non-core businesses including DirectTV and its Mexican wireless business. In its letter, the firm called these businesses “distractions” and said they should not be part of AT&T’s portfolio.
"Any assets that do not have a clear, strategic rationale for being part of AT&T should be considered for divestment," Elliott said.
The argument for change
The activist hedge fund is not alone. Some analysts don’t believe there are synergies between AT&T’s wireless, TV distribution business and media businesses.
“There probably are ways to streamline what they do a little bit more. It is a huge company, so it will be a big undertaking,” JJ Kinahan, TD Ameritrade's chief market strategist, told Yahoo Finance’s “The First Trade.”
Elliott also called out one of AT&T’s largest acquisitions — its $85 billion buyout of Time Warner, which was completed last year after a court battle with the U.S. Department of Justice.
"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," the fund said in a letter. "AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner."
Kinahan sees opportunity in the stock but cautions investors to temper their enthusiasm.
“This is a company that’s very attractive to stockholders in this current interest rate environment, because they have a great dividend yield, a blue-chip stock overall,” Kinahan said.
“What you hope is that [Elliott Management] has the best long-term interest of the company at heart. We’ve seen companies come in in the past and take apart companies,” he said.
Do investors know best?
AT&T said it will review Elliott's letter and said in a statement, “Indeed, many of the actions outlined are ones we are already executing today. AT&T's Board and management team firmly believe that the focused and successful execution of our strategy is the best path forward to create long-term value for shareholders.”
Kinahan said a mistake he sees a lot of investors make is believing they know what will happen with a particular company or stock: “That’s usually the case for disaster.”
He says investors should assess what they know about a company at the present time. “Do you know it’s a good company, do you like the stock? if you do, invest in it,” he said. “But if you were going to buy 500 shares, maybe you buy 200. That gives you a chance to go in and see what will happen.”
Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.