AT&T has reached a truce with the activist investor Elliott Management in a deal based around a “three-year action plan” to sell up to $10bn of assets and reconfigure its board.
The steps agreed by the US telecoms and media group include paying off debt raised for last year’s $80bn takeover of Time Warner, searching widely for an eventual successor to Randall Stephenson and splitting his roles of chairman and chief executive.
The end to hostilities with Elliott, one of the most feared activist investors, will be a big relief to the Texas-based company, which fought off calls for management changes and immediate disposals of assets such as satellite broadcaster DirecTV.
Elliott, which built a $3.4bn stake in AT&T, “commended” a three-year plan that it described as creating “substantial and enduring shareholder value at one of America’s greatest companies”.
AT&T’s management is fighting to justify its strategic decision to move into the content and pay-TV business with the $80bn takeover of Time Warner and $67bn acquisition of DirecTV, which left it lumbered with a $162bn debt pile.
The company’s shares jumped almost 5 per cent after an analyst call in which Mr Stephenson gave detailed guidance on plans to pay down the debt used to acquire Time Warner and buy back 70 per cent of the shares issued as part of the deal.
But some remained sceptical, given the falling revenues and operating profits at the entertainment and WarnerMedia divisions. “Will investors buy the story that a high fixed-cost business like AT&T is going to spin declining revenues into higher ebitda and higher free cash flow?” asked Craig Moffett in a note to investors. “Year after year for the next three years?”
The detente with Elliott has come at a crucial time, with AT&T’s WarnerMedia due to unveil its HBO Max streaming service on Tuesday, a big commercial bet to take on Netflix as the business races move beyond ailing cable and satellite services.
Mr Stephenson insisted the objectives outlined by AT&T had been “central to our plans” even before the completion of the Time Warner deal last year. But he said his thinking “had benefited” from discussions with the “smart people” at Elliott.
As well as pressing AT&T to justify its takeover of the renamed WarnerMedia, the hedge fund raised questions about the future of John Stankey, the chief operating officer and likely heir to Mr Stephenson.
AT&T said Mr Stephenson would remain at the helm “through at least 2020”. In addition it promised Elliott it would separate the chairman and chief executive roles and evaluate “all potential CEO candidates”. Two new directors will be added to the board.
Addressing calls to slim down its business, the company said it would “actively review” its portfolio, aiming to dispose of $5bn-$10bn of “non-strategic assets” next year.
It is the second detente this year involving Elliott and the telecoms sector. In March, a bitter and long-running dispute between the US fund and Vivendi over the future of Telecom Italia’s board make-up and strategy was resolved at the eleventh hour ahead of a shareholder vote. The two investors have proved more collaborative since then despite trading vicious personal barbs in the run-up to the vote.
The settlement with Elliott came as AT&T revealed it had haemorrhaged about 1.35m television customers in the third quarter, as consumers accelerated the move from the cable box to online alternatives.
Performance on the mobile side was more positive, with the Texas-based group adding 101,000 so-called “postpaid” subscribers who pay monthly bills, comfortably beating the 61,000 expected, according to Cowen analysts.
Revenues at AT&T in the third quarter to September 30 fell $1.2bn to $44.6bn, broadly in line with the $45bn expected by analysts, according to a Bloomberg survey. Adjusted earnings per share were 94 cents, slightly ahead of analysts’ estimates of 93 cents.
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