AT&T should focus on its 5G rollout and consider selling some of its assets including satellite TV service DirecTV to improve its business and stock price, an activist investor charged Monday.
Hedge fund Elliott Management Corp. made the strategic suggestions in a letter to AT&T's board, noting that it had made one of its largest investments ever, $3.2 billion.
"What has attracted our attention, as well as the attention of other shareholders – from large institutions to individual AT&T employees – has been the prolonged and substantial underperformance of AT&T as an investment relative to its potential," the letter says.
With "increased strategic focus" and other initiatives, the fund says in the letter, AT&T can boost its stock price to more than $60 per share by the end of 2012, 65% higher than the stock's current value.
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AT&T shares rose 9% in premarket trading Monday and at mid-morning were up 3.3% to $37.49, the highest mark since January 2018.
In wireless, AT&T should focus on its deployment of 5G, DEFINITION. to retain and gain new wireless subscribers, says the letter, signed by Elliot Management partner Jesse Cohn and assistant portfolio manager Marc Steinberg.
5G wireless networks promise significantly faster speeds and more robust connections speeds. AT&T and the other major carriers (Verizon, T-Mobile and Sprint) have all begun building out and in some cases deploying these new networks.
In the last wave of wireless technology, AT&T lost ground to Verizon in 4G LTE coverage and Verizon as earned an additional $20 billion in revenue as a result, the letter says. "Fortunately, the ongoing 5G transition presents AT&T with a renewed opportunity to reset the wireless narrative and reclaim market leadership. AT&T today is in prime position to be the early market leader in 5G given its premier spectrum positioning, early LTE-Advanced work and recent network improvements," the firm says.
However, without proper execution, "AT&T risks missing this opportunity and falling behind again," the letter says.
Lack of focus could be to blame for the company's underperformance, the firm says. The company's DirecTV Now live TV subscription streaming service has been "poorly executed," the firm charges. AT&T plans to launch HBO Max in the spring of 2020, but mixed signals about the WarnerMedia service "has intensified skepticism" around the company's strategy, the letter says.
"AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner," the firm says. The $85-billion merger, announced last year, was approved by a federal appeals court in February.
AT&T should "divest distraction" as a way to focus its initiatives, Elliott Management's letter says. It should consider selling or spinning off DirecTV, its Mexican wireless business, some of its wireline business, home security business, several regional sports networks, its Latin American pay-TV business (Vrio), Puerto Rican operations, and shares in Central European Media Enterprises, and the Sky Mexico TV service.
"Several of these larger assets are no longer complementary with the Company’s future strategic direction, and AT&T must determine whether there is a financially and strategically attractive path to divesting them," the letter says.
AT&T says it is listening to Elliott Management and in a statement released Monday said, "Our management team and Board of Directors maintain a regular and open dialogue with shareholders and will review Elliott Management’s perspectives in the context of the company’s business strategy. We look forward to engaging with Elliott. Indeed, many of the actions outlined are ones we are already executing today."
AT&T’s strategy "is driven by the unique portfolio of valuable businesses we’ve assembled across communications networks and media and entertainment, and as Elliott points out, is the foundation for significant value creation," the company's statement says.
Earlier this year, Elliott Management acquired the nation's largest bookstore chain Barnes & Noble for $486 million. The firm also owns Italian soccer team AC Milan, which it acquired last year.
Contributing: The Associated Press
Follow USA TODAY reporter Mike Snider on Twitter: @MikeSnider.
This article originally appeared on USA TODAY: AT&T should sell DirecTV, make changes to boost business, share price