Hedge Fund Elliott Management writes to ATT on how to “realize a historic increase in value” for its shareholders

Paul Singer runs hedge fund Elliott Management. The firm revealed in its letter yesterday to telecom conglomerate AT&T that it owned $3.2 billion of the latter’s stock.

Elliott’s open letter claimed that AT&T could boost its share price to $60+ by 2021 through “readily achievable initiatives.”

“This represents 65%+ upside to today’s share price – a rare opportunity for any company, let alone one of the world’s largest,” Elliott wrote.

Exhaustive diligence

Hedge fund Elliott Management detailed its extensive due diligence on AT&T. This exercise included reviews through consulting firms on strategy, cost optimization, and network dynamics.

Elliott was struck by “the prolonged and substantial underperformance of AT&T as an investment relative to its potential.”

The hedge fund pointed out that AT&T had underperformed the S&P500 by 150 percentage points over the last decade.

What AT&T did wrong

According to Elliott, AT&T wrong-footed itself by its expensive acquisitions of DirecTV and Time Warner. Elliott claims the $67 billion DirecTV acquisition was consummated “at the absolute peak of the linear TV market.”

On AT&T’s $109 billion Time Warner transaction Elliott said it was “cautious” on the benefits of the combination.

According to Elliott, AT&T created a well-capitalized and viable competitor after its deal with T-Mobile failed. As a result, AT&T paid the largest break-up fee ever and provided T-Mobile with seven-year roaming and invaluable spectrum.

This M&A strategy has directly led to AT&T’s “profound” share price underperformance.

What AT&T needs to do

According to Elliott, AT&T needs to cut expenditure and sell off its DirecTV and Mexican wireless businesses. It should refrain from further M&A and should instead focus on 5G. The hedge fund has extensive experience of shaking up underperforming management. It has launched 149 campaigns at 139 companies, earning shareholders billions of dollars.

After the letter, AT&T stock closed about 1.5% higher on Monday.