Breakingviews: Elliott brandishes velvet-clad fist at AT&T

Elliott Management’s activist assault on AT&T is notable mostly for what it doesn’t say. Paul Singer’s fund has taken a $3.2 billion position in the U.S. telco asking for more efficiency, fewer deals and less debt. Missing, but worthy of a discussion, is the idea of dethroning boss Randall Stephenson.

A decade of questionable decisions has left the $270 billion AT&T worth around 40% less than it should be, Elliott contends. Only the most stubborn shareholder would disagree. First, there was an ill-fated grab at T-Mobile US. That ended with AT&T paying a fee and some spectrum to the target, creating a stronger rival and a price war.

Second was the $67 billion acquisition of satellite firm DirecTV, which was declining when AT&T bought it in 2015 and still is. Third is the $109 billion purchase of media group Time Warner in which AT&T took on heavy debt to get into an industry in which it had no experience.

The common thread connecting the three is Stephenson. Since he stepped into the CEO office in 2007, AT&T’s share price is roughly unchanged. Meanwhile, competitor Verizon Communications, which has more or less stuck to its knitting of networks and mobile phones, is up around 70% during the same period.

Elliott’s 23-page missive skirts around the man himself, calling for a review of governance including “enhanced” leadership. That might seem coy for a fund that made its name wading into bare-knuckle fights with overstretched emerging-market debtors.

Yet Elliott can’t win on its own. AT&T is huge compared with past targets like car- and plane-parts maker Arconic. It also has a pretty fragmented shareholder base – the top 100 investors make up 44% of the total, according to Eikon. Many small investors will be focused mostly on AT&T’s generous dividends, which Elliott wisely suggests sustaining.

Brandishing a velvet-clad fist may therefore be a smart method. Elliott has even indirectly suggested an elegant way for Stephenson to give up power gradually, reminding the company that four in 10 investors recently voted to split his chair and CEO role. If the AT&T boss is perceptive, he’ll act before the gloves come off.

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