September 10, 2019
With AT&T spending more than $163 billion acquiring DirecTV and Time Warner (now WarnerMedia), the telecom remains challenged paying down debt and orchestrating a clear strategy for the combined assets in an age of cord-cutting.
That appears to be the gist why activist investor Paul Singer’s Elliott Management sent a 24-page letter to the AT&T board seeking executive changes, according to industry tip sheet “Byers Market”.
In the letter, Singer contends AT&T’s shareholder returns have underperformed the S&P 500 by well over 100 percentage points over the past 10 years.
He said the share-price underperformance has occurred as AT&T’s M&A strategy has taken it into multiple new markets over a series of deals totaling nearly $200 billion, and as its operational performance has measurably declined.
As a result, AT&T, according to Singer, is “deeply undervalued,” trading at just over half the multiple of the S&P 500 — by far its biggest discount yet.
Singer, who owns a $3.2 billion stake in AT&T, is known for taking stakes in publicly held companies and firing off letters to the board in hopes of exacting executive change — which often occurs.
About AT&T, Singer reportedly seeks the removal of CEO Randall Stephenson and COO John Stankey (who is also CEO of WarnerMedia) regarding the former’s merger & acquisition strategies.
Specifically, Singer contrasts AT&T’s M&A strategy with former Time Warner CEO Jeff Bewkes.
“When Bewkes took over Time Warner as CEO, he inherited a sprawling company with numerous related but non-core assets — AOL, Time Warner Cable, a collection of publishing assets and other smaller businesses,” read the letter. “He then spent the following decade divesting the non-core assets in order to focus on Time Warner’s leading content franchises.
This strategy paid off: Time Warner became both a flourishing media enterprise and a strong investment, returning more than double the S&P 500’s ~140% return during Bewkes’ 10-year tenure.”
Singer called on the board to evaluate (i.e. sell off) assets such as DirecTV, AT&T’s Mexico operations and U.S. wireline (pay-tv) platform (U-verse) platforms, among others.
In a response, AT&T’s board said it would review the letter, adding the company has already implemented many of the changes outlined by Singer.
The letter comes following the surprise retirement of John Donovan, CEO of AT&T Communications, and the Sept. 3 promotion of Stankey to COO.
Singer, in the letter, said he remains “cautious on the benefits of the [Time Warner, DirecTV] combination.”
Indeed, AT&T’s rollout of standalone online TV service, DirecTV Now, has seen the platform jettison hundreds of thousands of subscribers after it began ending the service’s initial $34.99 monthly fee. The service has been rebranded to AT&T TV.
The telecom has big plans for the launch of HBO Max, a SVOD platform intended to compete with Netflix, Amazon Prime Video, Disney+ and Apple TV+, among others.
At the same time, Max would appear to signal the end for HBO Now, the four-year-old SVOD service with less than 6 million subscribers.