Activist investors – shareholders who buy a stake in a company and then agitate for change – have been setting their sights on ever-increasingly big targets for some time.
Today, another huge company finds itself being targeted.
AT&T, the $275bn (£222bn) American telecoms giant, has attracted the attention of Elliott, perhaps the most feared of all the activists, which has taken a $3.2bn (£2.6bn) stake in it.
Elliott, which has previously taken stakes and campaigned for change at the likes of Dulux paints maker Akzo Nobel, online auctioneer eBay and German software giant SAP, also published a letter explaining its action.
It wrote: “What has attracted our attention, as well as the attention of other shareholders – from large institutions to individual AT&T employees – has been the substantial under-performance of AT&T as an investment relative to its potential.
“Over the past 10 years, for example, AT&T – a bellwether in all sense of the word – has not only failed to keep pace with the broader market, but has actually under-performed.”
Ominously, for AT&T, Elliott – which has some $38bn (£30.8bn) under management – indicated it would be seeking representation on the company’s board.
The news sent shares of AT&T – which was co-founded in 1885 by Alexander Graham Bell, the inventor of the telephone – up by more than 4% at one point, before they slipped back.
Elliott’s intervention in the affairs of AT&T comes at a crucial time for the company which, a year ago, paid $81bn for Time Warner, the entertainment giant behind the Warner Brothers movie studio and the cable networks HBO, Cartoon Network and CNN.
AT&T is in the process of preparing to launch HBO Max, a direct-to-consumer streaming service, one of the ways in which pay-television and landline phone providers are seeking to support their revenues as increasing numbers of customers engage in ‘cord-cutting’ and switch to alternative internet-based services such as Netflix and Amazon Prime Video.
AT&T is not alone in this regard.
Disney is preparing to launch its own streaming service, Disney+, following its blockbuster acquisition of 21st Century Fox’s film and entertainment assets .
So too are Apple and Comcast, the owner of Sky, parent company to Sky News.
Yet HBO Max is not due to launch until early next year, putting it behind several of its competitors.
This has not impressed Elliott, whose letter added: “AT&T has transformed itself into a sprawling collection of businesses battling well-funded competitors, in new markets, with different regulations and saddled with the financial repercussions of its choices.
“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.
“AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner.”
Elliott, headed by Paul Singer, has won early backing in its campaign from Donald Trump.
Great news that an activist investor is now involved with AT&T. As the owner of VERY LOW RATINGS @CNN , perhaps they will now put a stop to all of the Fake News emanating from its non-credible "anchors." Also, I hear that, because of its bad ratings, it is losing a fortune…..
— Donald J. Trump (@realDonaldTrump) September 9, 2019
The president, who to put it mildly is no fan of Time Warner’s cable news channel CNN and who unsuccessfully sought to have AT&T’s takeover of Time Warner blocked, tweeted: “Great news that an activist investor is now involved with AT&T.
“As the owner of VERY LOW RATINGS @CNN, perhaps they will now put a stop to all of the Fake News emanating from its non-credible ‘anchors’.
“Also, I hear that because it its bad ratings, it is losing a fortune. But most importantly, @CNN is bad for the USA.”
The move marks a return to its usual form for Elliott.
The fund manager has raised eyebrows during the last year or so by buying businesses such as AC Milan, the Italian football club and Barnes & Noble, the US bookseller, outright, instead of taking a stake in them and campaigning for change.
AT&T now faces a battle in rebutting Elliott’s analysis.
Its total return has under-performed that of Comcast and Verizon, with whom it vies for leadership of the US mobile market, as well as the wider S&P 500 index.
Meanwhile, AT&T’s ownership of Time Warner has been fraught with problems, not least the departure of a number of top executives.
These included Richard Plepler, the former head of HBO, who was instrumental in the creation of TV hits such as The Wire, True Detective and The Sopranos.
Other pitfalls have included expanding the role of Kevin Tsujihara, chief executive of the Warner Brothers movie studio, only for him to have to leave the company shortly afterwards following allegations of inappropriate behaviour.
Nearly all of Time Warner’s previous leading executives have left the company since it was bought by AT&T.
The latter has been beset by accusations that, as an old-style telecoms company, it is not sufficiently culturally attuned to running a media and entertainment business.
But the analysis supplied by Elliott, which in the past has also won legal battles with the Argentinian government, goes further than that.
Its scepticism of the Time Warner deal is part of a broader critique of AT&T’s acquisition strategy which, during the last decade, also includes the $67bn takeover five years ago of the satellite operator DirecTV and the failed $39bn bid, eight years ago, for mobile rival T-Mobile USA.
Despite its size, AT&T is going to have its work cut out to see off Elliott.
It should be a fascinating scrap to keep both Wall Street and Hollywood enthralled this autumn.
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