AT&T To Add New Directors, Weigh Asset Sales In Truce With Elliott Management

AT&T Inc. T is ready to bargain with an activist hedge fund demanding improvements.

In response to Elliott Management’s September letter, management announced Monday it will embrace a more disciplined acquisition strategy and review its portfolio to identify potential asset sales or spinoffs. It also set three-year financial targets to pay off debt from the Time Warner deal and consistently raise revenue, profit and dividends.

AT&T will also refresh corporate governance at a clip that keeps Chairman and CEO Randall Stephenson at the helm at least through 2020. Upon Stephenson’s retirement, AT&T will split the roles of chairman and CEO. Two of the board’s directors will retire within 18 months to make space for new members.

"The objectives we have outlined today have been central to our plans for many months, even before we closed our acquisition of Time Warner. But, as you would expect, our thinking has also benefited from our engagement with our owners, including Elliott Management," Stephenson said in a press release. "I've found our engagement with Elliott to be constructive and helpful, and I look forward to continuing those conservations. These are smart people who very much appreciate the opportunity we have to create tremendous shareholder value."

See Also: AT&T Reports Q3 Earnings Beat

How The Concessions Align With Demands

In September, Elliott Management disclosed a 9%, $3.2 billion stake in AT&T — a company it considered “deeply undervalued.” Elliott proposed a path to generate a 65% return.

"The truth remains that AT&T has irreplaceable assets, enormous earnings power and an ability to win in key markets," it said in a letter at the time. "Particularly when coupled with a depressed valuation that assumes no changes will be made, we believe AT&T presents as a uniquely attractive business and investment opportunity."

But Elliott wanted change and the higher valuation — potentially $60 per share — that comes with it. It proposed divestment of non-core assets, deleveraging of the balance sheet, leadership development, operational efficiency improvements and capital discipline strategies.

"This level of potential value creation is unique for any company, let alone one with a market capitalization north of $250 billion," the letter read.

In conjunction with the company's third-quarter earnings beat, the market seemed satisfied with AT&T’s response. At time of publication, shares traded up 3.9% to $38.35.

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