By Meg James
The Los Angeles Times
AT&T has reached a truce with an activist investor critical of its strategy, but the company’s DirecTV unit continues to bleed customers, underscoring the challenges facing the Dallas communications giant and raising questions about AT&T’s long-term commitment to the satellite TV business.
In the third quarter, DirecTV and its U-Verse television unit lost a staggering 1.2 million customers, as more consumers cut the cord and migrate to streaming platforms. The losses continue a troubling trend that has attracted the scrutiny of AT&T’s activist investor, Elliott Management Corp., which has prodded AT&T to sell assets, including the El Segundo-based television giant.
AT&T acquired DirecTV in 2015 and the business has stumbled dramatically since then. During a Monday morning conference call with analysts to discuss its three-year business plan, AT&T Chairman and Chief Executive Randall Stephenson suggested that AT&T wasn’t committed to holding onto DirecTV for the long term, saying the company would “evaluate multiple options and partnerships.”
“We have no sacred cows,” Stephenson said, adding that DirecTV “will be an important piece of our strategy of the next three years. But no portion of our business is ever exempt from a continuous assessment for fit and performance.
“We will approach it with a fresh set of eyes and clarity around the rapidly evolving consumer environment.”
AT&T has been under pressure from Elliott Management Corp. since early September. The New York hedge fund, which owns a $3.2-billion stake in AT&T, has been sharply critical of AT&T management and its operations. In particular, Elliott Management rebuked AT&T’s decision to spend more than $150 billion to become an entertainment colossus by purchasing DirecTV and WarnerMedia, which includes HBO, CNN and the Warner Bros. television and movie studio in Burbank.
Elliott Management has pushed for management changes, too, criticizing Stephenson and John Stankey, who runs Warner Media and was recently elevated to chief operating officer at AT&T.
Stephenson on Monday praised Stankey. Stephenson also said that he will stay on the job at least through the end of next year.
“I have every intention to be here,” Stephenson said, adding that he wants to be at the helm as the AT&T finishes its evolution from a phone company to a communications and entertainment behemoth.
As part of the agreement with Elliott Management, AT&T pledged not to make any more major acquisitions. It also agreed to add two new board members by 2021. AT&T’s pact Elliott Management includes a promise to make stock buybacks and a comprehensive review of its porfolio. Stephenson committed to selling non-core assets, and said that the company should generate $5 billion to $10 billion in divestitures next year. AT&T has already begun to shed certain assets, including telephone operations in Puerto Rico.
“We commend AT&T for the positive steps announced today, which will create substantial and enduring shareholder value at one of America’s greatest companies,” Elliott Partner Jesse Cohn and Associate Portfolio Manager Marc Steinberg said in a statement Monday. “We have worked closely and collaboratively with management and the Board on the initiatives announced today. It is clear to us that AT&T is committed to and accountable for creating shareholder value over the near- and long-term.”
The agreement with Elliott Management was swift, coming just seven weeks after Elliott sent a strongly worded 23-page letter that pointed out tremendous management churn at DirecTV and WarnerMedia, which was called Time Warner until last year when AT&T rebranded the media company. Since then, Stephenson said, he has met frequently with the Elliott managers to hammer out a compromise. Stephenson called the sessions “constructive” and “helpful.”
“These are smart people,” Stephenson said.
With the truce, AT&T avoids with a distracting battle with Elliott Management, which is headed by the billionaire Paul Singer. And Elliott Management does not have to go to the expense of a long, drawn out proxy fight to overturn AT&T’s board.
“We have closely evaluated the company’s three-year plan and support the steps toward a faster-growing, more profitable, focused and shareholder-friendly company,” Elliott’s Cohn and Steinberg said in the statement. “The combination of AT&T’s improving business performance, consistent and faster revenue growth, significant margin expansion and enhanced capital return will generate meaningful earnings and cash flow growth over the next three years.”