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Change is in the air at AT&T, so what’s an investor to do?
Paul Singer’s Elliott Management sent a letter to the company’s board announcing it owns $3.2 billion in AT&T (T) stock and predicts the telecom giant could be worth at least $60 a share by 2021.
That vote of confidence from one of the country’s top activist shareholders sent shares of AT&T up more than 2.5% to about $37 a share.
But that big investment doesn’t come without some big demands.
Elliott wants AT&T to spin off or sell some of its non-core businesses including DirectTV and its Mexican wireless business. In its letter, the firm called these businesses “distractions” and said they should not be part of AT&T’s portfolio.
"Any assets that do not have a clear, strategic rationale for being part of AT&T should be considered for divestment," Elliott said.
The argument for change
The activist hedge fund is not alone. Some analysts don’t believe there are synergies between AT&T’s wireless, TV distribution business and media businesses.
“There probably are ways to streamline what they do a little bit more. It is a huge company, so it will be a big undertaking,” JJ Kinahan, TD Ameritrade's chief market strategist, told Yahoo Finance’s “The First Trade.”
Elliott also called out one of AT&T’s largest acquisitions — its $85 billion buyout of Time Warner, which was completed last year after a court battle with the U.S. Department of Justice.
"While it is too soon to tell whether AT&T can create value with Time Warner, we remain cautious on the benefits of this combination," the fund said in a letter. "AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner."
Kinahan sees opportunity in the stock but cautions investors to temper their enthusiasm.
“This is a company that’s very attractive to stockholders in this current interest rate environment, because they have a great dividend yield, a blue-chip stock overall,” Kinahan said.
“What you hope is that [Elliott Management] has the best long-term interest of the company at heart. We’ve seen companies come in in the past and take apart companies,” he said.
Do investors know best?
AT&T said it will review Elliott's letter and said in a statement, “Indeed, many of the actions outlined are ones we are already executing today. 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.”
Kinahan said a mistake he sees a lot of investors make is believing they know what will happen with a particular company or stock: “That’s usually the case for disaster.”