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AT&T Seeks To Resolve Activist Campaign -- WSJ

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10/18/2019 | 02:49am EST

By Corrie Driebusch, Drew FitzGerald and Dana Cimilluca

AT&T Inc. is in talks with Elliott Management Corp. to resolve the activist investor's campaign for change at the phone and media giant, people familiar with the matter said.

The two sides have held a series of wide-ranging discussions since Elliott disclosed a stake in AT&T five weeks ago and publicly urged the company to make changes aimed at igniting its lackluster share performance. AT&T and Elliott could reach an agreement as soon as this month, though the talks could also fall apart, the people said.

The two sides are discussing a number of possible moves by AT&T, including a strategic review of assets that could be sold or spun off and a push to improve margins, some of the people said. AT&T could also agree to make changes to its board with input from Elliott.

AT&T recently delayed the release of its quarterly earnings, initially scheduled for next week, giving the two sides more time to reach an agreement. The Dallas company is now expected to discuss its latest results on Oct. 28, a day before it will unveil its HBO Max streaming service at an event in Burbank, Calif.

Should AT&T and Elliott come to terms by then, it would be a relatively quick turnaround compared with the traditional activist campaign. It would show AT&T, which has enlisted bankers at Centerview Partners and Goldman Sachs Group Inc. for help, is eager to avoid a drawn-out public brawl and get on with addressing the challenges to its business.

Elliott has compiled a list of director candidates it thinks AT&T might consider, according to one of the people. Should talks sour, some could be considered as board nominees for a proxy fight Elliott could mount at AT&T's annual meeting next year, this person said. Elliott, one of the most prolific and aggressive activists, previously waged proxy fights at Hess Corp. and Arconic Inc.

Shares of AT&T, which has a market value of about $275 billion, have done little in the past two decades despite a series of major acquisitions by Chief Executive Randall Stephenson and his predecessor. The stock has rallied this year and currently trades near $38.

Last month, Elliott disclosed it had amassed a roughly 1% stake in AT&T. In a letter, it challenged AT&T's leadership, criticized its shift into the media business and called on the company to review units that might not fit with its long-term strategy including its DirecTV satellite division and Mexican wireless operations.

Mr. Stephenson said the company was already pursuing some of the ideas advanced by Elliott and defended the company's media strategy, including its takeovers of DirecTV and Time Warner. He also defended the recent promotion of John Stankey, an AT&T veteran, to the No. 2 role at the company, making him Mr. Stephenson's heir apparent.

Mr. Stephenson, who has run AT&T for a dozen years, has privately discussed stepping aside as CEO as soon as next year, people familiar with the matter have said. The promotion of Mr. Stankey spurred Elliott to go public with its campaign, The Wall Street Journal has reported.

AT&T has said it was open to some of Elliott's suggestions, such as repurchasing stock and selling noncore assets, but has responded more coolly to others, such as giving the hedge fund a say in management appointments.

After agreeing this month to sell its Puerto Rico operations, AT&T signaled it would resume share repurchases in the fourth quarter. The company has spent the lion's share of its free cash flow over the past year on its dividend and on whittling down debt accumulated from acquisitions. Its net debt surpassed $160 billion earlier this year.

DirecTV, which AT&T bought in 2015 for $49 billion, has been losing subscribers as consumers cancel their TV service. AT&T ended the second quarter with 23 million U.S. pay-TV customers. Analysts expect the company to report more than one million video cancellations when it unveils its latest quarterly results.

AT&T's HBO Max streaming service will compete with Netflix Inc. and other offerings in the works from Walt Disney Co., Comcast Corp. and Apple Inc. The service, which will include HBO shows plus Warner Bros. content like Cartoon Network shows and "Friends," isn't expected to launch until next year.

Write to Corrie Driebusch at corrie.driebusch@wsj.com, Drew FitzGerald at andrew.fitzgerald@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

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Stocks mentioned in the article
ChangeLast1st jan.
APPLE INC. -1.42% 262.6829 Delayed Quote.68.82%
ARCONIC INC. -0.81% 30.79 Delayed Quote.83.93%
AT&T -2.60% 37.03 Delayed Quote.33.15%
COMCAST CORPORATION -1.73% 44.065 Delayed Quote.31.60%
GOLDMAN SACHS GROUP INC. -1.00% 218 Delayed Quote.31.72%
HESS CORPORATION 1.57% 67.315 Delayed Quote.63.46%
NETFLIX 0.40% 303.98 Delayed Quote.13.05%
WALT DISNEY COMPANY (THE) -1.26% 146.62 Delayed Quote.34.66%
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Financials (USD)
Sales 2019 182 B
EBIT 2019 30 454 M
Net income 2019 16 530 M
Debt 2019 154 B
Yield 2019 5,38%
P/E ratio 2019 16,9x
P/E ratio 2020 13,3x
EV / Sales2019 2,38x
EV / Sales2020 2,33x
Capitalization 278 B
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Technical analysis trends AT&T
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Income Statement Evolution
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Mean consensus OUTPERFORM
Number of Analysts 29
Average target price 39,70  $
Last Close Price 38,00  $
Spread / Highest target 26,3%
Spread / Average Target 4,48%
Spread / Lowest Target -47,4%
EPS Revisions
Managers
NameTitle
Randall L. Stephenson Chairman & Chief Executive Officer
John T. Stankey President & Chief Operating Officer
John J. Stephens Senior EVP, Chief Financial & Accounting Officer
Laura D'Andrea Tyson Independent Director
Matthew K. Rose Lead Independent Director
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