Elliott Management, a hedge fund that owns a $3.2 billion stake in AT&T, today sent a letter to the company’s board asking, among other things, that DirecTV be sold off.
The investor pointed out that DirecTV, which AT&T acquired in 2014 for $67 billion, has lost millions of subscribers, and that pay TV trends are continuing downward. AT&T lost 778,000 traditional TV service subscribers in the second quarter. The company now has 21.58 million traditional video subscribers, down 8.7% from what it had one year prior.
“In fact, trends are continuing to erode, with AT&T’s premium TV subscribers in rapid decline as the industry, particularly satellite, struggles mightily,” the fund wrote in a press release. “Unfortunately, it has become clear that AT&T acquired DirecTV at the absolute peak of the linear TV market.”
Elliott speculated that DirecTV’s troubles could be tied in part to the satellite provider’s management team departing shortly after AT&T completed the acquisition.
Elliott also leveled criticism at DirecTV Now (which has been renamed AT&T TV Now), saying the service has been “poorly executed with delays, technical mishaps, weak customer service and usability issues.” The fund added that the service has seen consistent subscriber declines since normalizing prices.
The fund also questioned AT&T’s WarnerMedia strategy, which includes launching HBO Max, a beefed-up version of the subscription video streaming service, in early 2020. The news release pointed out that WarnerMedia has already changed the pricing strategy once for the service, and that some confusion still remains.
“Last November, AT&T laid out a detailed, three-tiered offering with an emphasis on Warner Brothers (not HBO). Then, just six months later, AT&T scrapped that plan and instead promoted a single new product, HBO Max, with radically different pricing and an already delayed launch. This quick reversal has intensified the skepticism around WarnerMedia, its OTT strategy and the management of the business itself,” Elliott wrote.
Elliott Management suggested that AT&T shift its focus away from M&A and toward execution; divest operations including DirecTV, its Mexican wireless operations and pieces of its wireline footprint; enlist third-party advisors to review the company’s operations; create a formalized capital allocation framework; and review its executive leadership lineup to “determine the right team for the next decade.”
The fund said that executing on these points could lead AT&T to a more than $60 per share value by the end of 2021, representing a more than 65% upside to today’s share price.
AT&T responded and said that it would review Elliott Management’s perspectives and said that many of the actions outlined are already being executed today.
“We look forward to engaging with Elliott. Indeed, many of the actions outlined are ones we are already executing today,” AT&T said in a statement. “AT&T’s Board and management team firmly believe that the focused and successful execution of our strategy is the best path forward to create long-term value for shareholders.”