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AT&T Boss Met Activist -- WSJ

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09/21/2019 | 03:12am EDT

CEO discussed strategy with hedge-fund critic

By Drew FitzGerald and Corrie Driebusch 

AT&T Inc.'s chief executive met this week with the activist investor who is pressing the company to rethink its strategy and sell off more assets, according to people familiar with the matter.

AT&T boss Randall Stephenson and Jesse Cohn, the portfolio manager at Elliott Management Corp. who challenged the telecom veteran, met Tuesday in New York for an introductory conversation, the people said. The hedge-fund manager discussed streamlining operations and Elliott's other ideas, the people said.

In a letter last week, Elliott challenged AT&T's leadership, criticized its shift into the media business and called on the company to review units that might not fit its long-term strategy, highlighting its DirecTV satellite division and Mexican wireless operations.

AT&T has publicly discussed shedding smaller assets that would help reduce debt but not alter its overall strategy. The company is considering the sale of four regional sports networks and a stake in a TV operator in central Europe acquired through its Time Warner purchase. It is also marketing $500 million worth of real estate.

The phone giant is also exploring parting with the DirecTV business, a discussion that began before Elliott launched its campaign, some of the people said. It has considered various options for DirecTV, including a spinoff into a separate company and a combination with rival Dish Network Corp., The Wall Street Journal reported this week.

Assets sales could help the company pay down some of its roughly $160 billion of net debt, but there are few potential buyers for DirecTV, which has been losing millions of subscribers. It would be hard for Dish to buy the business outright because Dish is half the size and has little cash on hand.

A combination with Dish could be structured in another way, one in which the new entity takes on debt and returns the proceeds back to AT&T, analysts and people familiar with the matter say. But there are formidable obstacles to such a deal.

AT&T finance chief John Stephens last week said combining two satellite providers has been tried before and failed. "From a regulatory perspective, it hasn't been successful and I don't know that there is any change in that regulatory perspective," he said at an investor conference.

Another complication comes from President Trump, who opposed AT&T's purchase of Time Warner and has been openly antagonistic toward its CNN unit. Some people close to AT&T are skeptical they can get approval for any deal under the current administration. The day Elliott disclosed its stake in AT&T, Mr. Trump tweeted: "Great news that an activist investor is now involved with AT&T."

The two nationwide satellite-TV providers tried to merge in 2001 but regulators blocked the move on antitrust grounds. The advent of streaming services has upended the pay-TV marketplace, but combining DirecTV and Dish would still face regulatory hurdles, antitrust experts say. AT&T has about 23 million pay-TV subscribers. Dish has about 12 million.

Times have changed over the past 18 years. More telephone companies have entered cable-TV markets, while streaming services like Netflix Inc. and Hulu arguably meet the Justice Department's longstanding definition of a pay-TV provider. New online video services from Comcast Corp., Apple Inc., Walt Disney Co. and AT&T's WarnerMedia are joining the fray.

"In short, it is only a matter of time, if the time is not already here, before the government will have to adopt a new product market definition, " New Street Research analyst Blair Levin, a former Federal Communications Commission official in charge of its Obama-era national broadband plan, wrote in a note to clients.

Antitrust experts say the closest comparison is the 2008 deal between Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. Federal regulators in that case agreed with the companies' argument that they would still compete against a range of in-car entertainment aside from satellites.

Merging two satellite-TV providers could still trouble competition watchdogs looking out for rural viewers. Broadband access in far-flung parts of the country is growing, allowing more access to TV channels delivered over the internet. About 5% of Americans don't have access to cable or internet TV, according to Moody's Investors Service. A satellite-TV monopoly in those places could hurt the deal's prospects in Washington.

To head off that problem, the two satellite providers could work together via a joint venture to combine their back office, control of their satellite fleets and installations, Moody's analyst Neil Begley wrote in a note to clients. "That would potentially provide material cost synergies while still leaving two separate competitors intact."

Shalini Ramachandran contributed to this article.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Corrie Driebusch at corrie.driebusch@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
APPLE -1.46% 217.73 Delayed Quote.38.03%
AT&T 2.05% 37.91 Delayed Quote.32.83%
COMCAST CORPORATION -0.69% 46.36 Delayed Quote.36.15%
DISH NETWORK CORPORATION -2.54% 34.54 Delayed Quote.38.33%
NETFLIX -5.53% 270.75 Delayed Quote.1.15%
WALT DISNEY COMPANY (THE) -0.77% 132.27 Delayed Quote.20.63%
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Financials (USD)
Sales 2019 182 B
EBIT 2019 30 536 M
Net income 2019 18 301 M
Debt 2019 156 B
Yield 2019 5,39%
P/E ratio 2019 15,3x
P/E ratio 2020 13,1x
EV / Sales2019 2,37x
EV / Sales2020 2,32x
Capitalization 277 B
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Mean consensus OUTPERFORM
Number of Analysts 28
Average target price 36,88  $
Last Close Price 37,91  $
Spread / Highest target 26,6%
Spread / Average Target -2,70%
Spread / Lowest Target -47,2%
EPS Revisions
Managers
NameTitle
Randall L. Stephenson Chairman, President & Chief Executive Officer
John J. Stephens CFO, Principal Accounting Officer & Senior EVP
Joyce M. Roché Independent Director
Laura D'Andrea Tyson Independent Director
Matthew K. Rose Lead Independent Director
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