The New York-based activist hedge fund, which takes large positions in underperforming companies and then advocates for management to implement changes that will turn them toward profitability, revealed the purchase is one of its largest investments ever.
In a letter to the company's board, Elliott Management partner Jesse Cohn and associate portfolio manager Marc Steinberg raised concerns about AT&T's debt and its recent acquisition of Time Warner, as well as presented a plan, which is called the Activating AT&T Plan, to "improve its business and realize a historic increase in value" for shareholders.
"Elliott believes that through readily achievable initiatives - increased strategic focus, improved operational efficiency, a formal capital allocation framework and enhanced leadership and oversight - AT&T can achieve $60+ per share of value by the end of 2021," they wrote.
As part of this initiative, the firm wants AT&T to sell many of the non-core businesses it considers to be "distractions" and proposed spinning off DirecTV, the Mexican wireless business and several other operations. In addition, Elliott encouraged the company to buy back more stock, increase its dividend and pay down debt.
In regard to Time Warner, Elliott said AT&T "has yet to articulate a clear strategic rationale" for owning the company and shareholders "should be seeing some manifestations of the clear strategic benefits."
CNBC reported AT&T's $85 billion purchase of Time Warner, which represents one of the largest acquisitions in the telecom industry's history, has generally been applauded as a solid investment in some of the world's top media assets, but critics have pointed out the combined company has approximately $180 billion in debt, a 12% increase from AT&T's prior load.
"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," Elliott's letter said.
The letter also lamented on AT&T's poor execution in the wireless space, saying it has sacrificed market share to Verizon Communications Inc. (NYSE:VZ), T-Mobile US Inc. (NASDAQ:TMUS) and Sprint Corp. (NYSE:S). Regardless, the GuruFocus Industry Overview page shows the Dallas-based company remains the largest player in the communication services sector, followed by Verizon and Comcast Corp. (NASDAQ:CMCSA).
In a statement, AT&T said it will review the letter:
"We look forward to engaging with Elliott. 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."
With a market cap of $264.88 billion, shares of AT&T were trading 4.55% higher on Monday morning at $37.90. After tumbling approximately 27% in 2018, GuruFocus estimates the stock has gained 32% year to date.
Disclosure: No positions.
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