Union Urges AT&T to Reject Activist Investor's "Archetype Ploy of Vulture Capitalists"

Randall Stephenson - Economic Club Lunch- Getty-H 2019
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Communications Workers of America president Chris Shelton argues in a letter that Elliott Management's proposals are a "stale critique" that is "flawed in key respects."

AT&T’s main labor union, the Communications Workers of America, has reiterated that it wants the telecom giant to reject activist investor Elliott Management’s proposals for a shake-up of the company, describing it an "archetype ploy of vulture capitalists."

The union, which represents more than 100,000 AT&T workers, in mid-September said the hedge fund’s proposals would eliminate jobs and harm customers and long-term investors.

In an email and letter from Sept. 25 that AT&T on Tuesday disclosed in a regulatory filing, the union's president, Chris Shelton, again urged AT&T chairman and CEO Randall Stephenson and the company's board to "reject Elliott Management's 'Activate AT&T' proposal, which, if implemented, would undermine both AT&T's promising rebound since closing the Time Warner merger, its long-term valuable relationship with its skilled workforce, and critical investments in next-generation broadband networks that are crucial to building vibrant communities and a strong U.S. economy."

Saying the union was "deeply troubled by Elliott Management's proposed intervention," Shelton called it "the archetype ploy of vulture capitalists: boost earnings through headcount reductions, outsourcing and reduced investment to benefit Elliott Management." Added the union: "We think this approach will not benefit long-term shareholders."

The letter included data on Elliott's past shareholder activism, with Shelton arguing, "There is no evidence that Elliott's restructuring and capital allocation strategies have succeeded in creating long-term value."

The letter also argued that Elliott's proposals are a "stale critique" that is "flawed in key respects, particularly in failing to attend to the recent rebound in the company's share price, its actual long-term performance, and its articulated strategy for integrating Time Warner assets."

Elliott called for changes at the telecom and entertainment giant, arguing that its acquisition strategy in particular has hurt the company's shares and performance. It particularly criticized AT&T's acquisition of satellite TV giant DirecTV, given the challenges the pay TV market has seen since, and raised questions about the strategic benefits of the takeover of Time Warner. "AT&T should now place its greatest emphasis on operations — it must move past the era of asset accumulation and into one of integration and execution," the letter argued, adding that changes could lead AT&T's stock to reach a value of $60-plus by the end of 2021, representing a 65 percent-plus upside.

Elliott outlined a four-part plan focused on "increased strategic focus," including the possible sale of unnecessary assets; improved operational efficiency; "a formal capital allocation framework"; and "enhanced leadership and oversight." 

AT&T chairman and CEO Stephenson recently called the Elliott proposals a "mixed bag." He told a Goldman Sachs investor conference last month: "There are some things in the letter that we've looked at and say it makes a lot of sense. And we need to push further and talk about that." But, he added: "There are some other areas you look at, and it's not as clear in terms of how it would make sense for us. But these are smart guys, right, and they put a lot of ideas into the paper that we need to sit down and engage with them on."