Why Elliott Management Sold Its AT&T shares: Jeff Kagan

Image: Paul Singer, Founder, President, Co-CEO and Co-CIO, Elliott Management Corporation

A year ago, Elliott Management bought AT&T stock and wanted to completely overhaul the company and its growth strategies by breaking everything up in order to increase their share value. Now, one year later, the fund manager sold its AT&T stock. So, let’s take a look at this potential disaster that was averted.

Elliott Management was only interested in making as much money as they could as quickly as possible. This was wrong. At the time, AT&T was in the process of a multi-year transformation and growth of the company.

Remember, there are two different ways to run a company. You either put the investor first, or you put the workers and customers first. There are plenty of companies on both sides of this equation.

Neither is illegal, but in my opinion, one is definitely right and the other definitely wrong. Only one way builds the company for long-term success and strength.

Strategy of Herb Kelleher, co-founder and former CEO of Southwest Airlines, works

The right way was taught by a CEO of a successful airline. Herb Kelleher, the co-founder, former CEO and Chairman Emeritus of Southwest Airlines, always said: First, take great care of your people. Then, they will take great care of your customers. Then the investor will be happy.

And it has to be done in that order. I believe this method should be learned by everyone and practiced at every company. Period. In this model, everyone wins: workers, customers and investors.

On the other hand, if you put the investor first, you never have happy workers or satisfied customers. That’s a long-term recipe for disaster.

So, we have to ask this basic question, do we want to sell off or build up the company?

If we want to build the company, the CEO and Board of Directors should always put the workers and customers first. They should never put the investor first. Once you have a successful company, then the investor wins.

AT&T has been pursuing a long-term growth strategy

The strategy that AT&T has been taking over the last several years has been two-fold. The first part is building the company's wireless, telecom, Internet and pay TV business with DirecTV and AT&T TV.

At the same time, its acquisition of WarnerMedia gave the company the ability to have several new growth areas including Warner Brothers Studio, CNN, HBO Max and more.

This was a solid long-term plan for growth that made sense until COVID-19 reared up and impacted the WarnerMedia side of the business.

Also, months before the pandemic, Elliott Management stepped in and wanted to break up the company to squeeze value out of the parts. Then they would move onto their next company and do the same.

Elliott Management's tactics remind me of Gordon Gekko from the first Wall Street movie. Remember how he acquired a company, then sold off the parts. He didn’t build, he dismantled and spun off the parts.

There is a big conflict between the long-term growth is company is building and the short-term results investors like Elliott Management wanted.

Whenever there is a difference between what the investor wants for a short-term payoff, and what the company wants for long-term growth, the company should always focus on long-term growth.

This is exactly what Amazon.com has done since its beginning, and it works.

CEO must balance the push/pull of short-term and long-term

This is the push/pull struggle every CEO and Board of Directors must wrestle with at every company.

Elliott Management saw value in its short-term plan as an investor, though this wouldn’t build the company. Instead, it would drain the company until there is nothing left but the bones lying on the desert floor. Then Elliott Management flies away and moves on to its next company like locusts.

That’s not the spirit that built America. Investors like Elliott Management do not care about building a company. They don’t care about strengthening an industry or a country.

Instead, all they want to do is squeeze every dollar out, then move on.

Again, while this is not illegal, this behavior is simply wrong. It is backwards.

The CEO of any public company must balance the needs of the workers, the customers and the investors. All three must win for a company to be successful for the long-term.

In some companies, everyone is on the same page. This is clean and easy. With most companies, however, there is a conflict. That’s when things can get messy.

CEO and Board of Directors need a strong growth vision

That’s when the CEO and the Board of Directors need to have a strong vision of who they are in order for the company to continue to grow and stay strong going forward.

When a company focuses first on the investor, like what Elliott Management wanted, both the workers and the customers are cut short.

This is the way the cable television industry has worked for decades. Companies like Comcast Xfinity, Charter Spectrum, Altice and the many smaller providers always put the investor first.

In the past, this did not hurt them because they had a unique strength. There was only one cable TV company in each region. They had no competition. So, the customer had no other choice.

Going forward, there is plenty of competition for pay TV over the Internet and wireless services. This new kind of pay TV is winning market share and taking it from cable TV companies.

Cable TV companies must change, put customers first, or they will suffer

In this world, cable TV companies must put their people and their customers before their investors. This is sticky, because it means changing their strategies.

This is what they need to be doing, but they have not really made much of a change so far.

Nearly every other industry is based on competition, and it is vital that every winning player first focus on its workers and its customers, and the end result will reward its investors.

I don’t know Elliott Management. They could be very nice people. Their business strategies would be better, however, if they helped companies build, rather than tear them apart and eat them alive.

I am happy that Elliott Management is no longer going to pester AT&T to make changes that are not in the company's best, long-term interest.

AT&T still has to wrestle with COVID-19 like every other company, but at least it no longer has to deal with this fund manager that just wanted to peel its skin and suck it dry while it was still alive.

Jeff Kagan is an Equities News columnist. Kagan is a Wireless Analyst who follows Telecom, Pay TV, Cloud, AI, IoT, Tele Health, Healthcare, Automotive, Self-Driving cars and more. Email him at [email protected]. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan and LinkedIn www.linkedin.com/in/jeff-kagan/

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Equities Columnist: Jeff Kagan

Source: Equities News