The activist investor Elliott Management has launched a call for a strategic rethink at AT&T, saying it has a plan to turnaround the company's business and end the stock's underperformance. After buying USD 3.2 billion worth of AT&T's shares, one of its largest investments ever, Elliott said it sees as much as 65 percent upside in the share price by 2021 and wants to work with AT&T to implement the plan.
The shareholder published the proposal sent to AT&T's board, with detailed plans for divestments, cost cutting and improved returns for shareholders. Elliott blamed the poor performance on AT&T on the many acquisitions at the group in recent years, saying the operator has too long been in 'acquisition mode' and now needs to focus on execution.
AT&T said in a response that it would review Elliott's proposals and maintains a regular, open dialogue with shareholders. It added that "many of the actions outlined" by Elliott are already being executed at the company.
The three-step turnaround plan starts with a complete review of AT&T's portfolio to see which assets no longer fit its strategy and to free up capital. Elliot said everything should be on the table, and in particular DirecTV, the Mexican wireless operations and pieces of the wireline footprint.
Next it wants improvement at the remaining operations, through around USD 5 billion in cost reductions. This should result in a 3 percent point increase in AT&T's EBITDA margin to 36 percent in 2022. Suggested areas for savings include streamlining management layers, more efficient network operations and self-service channels, scaling back the retail and office footprint, and tighter control of third-party suppliers. Elliott noted that rival Verizon has been much more successful in taking out costs, leading to better margins.
The aim is to release funds for shareholder returns, boosting the stock's performance. This is further supported by a freeze on any material M&A at the company. Elliott wants to see the operator grow its dividend around 2 percent per year, as well as split any remaining cash flow equally between debt reduction and share repurchases. AT&T has been more focused on debt reduction since its takeover of Time Warner but has hinted more recently that it could consider share repurchases.
The plan was rejected by the Communication Workers of America, the main union at AT&T. They said the plan would harm customers and long-term investors and only benefit a small set of shareholders. The union called instead for AT&T to invest in expanding its internet services in the US and in training and retention of staff.
