Elliott Management and the Raiders of Lost Value

By Robert Moss

Their sheer presence can strike fear into the hearts of corporate management teams. Led by the so-called “Vulture Lord,” Paul Singer and Elliott Management have forged a reputation as the largest activist investor in the world. Two weeks ago, they announced AT&T as their latest target in the quest for lost shareholder value.

Elliott Management was founded by Paul Singer, the current CEO, in 1977. For curiosity sake, the investment management firm was named after Singer’s middle name. Early on, Elliott Management pursued relative-value strategies, trying to exploit arbitrage opportunities. Today they manage US$38.2 billion in assets under management. Their core strategies range from, “distressed securities, equity oriented, hedge/arbitrage, commodities trading, other debt, portfolio volatility protection, private equity and private credit, and real estate related securities” as described on their website.

The investment management firm has forged its reputation with distressed securities and activist investing in equities. Argentina’s former President, Cristina Fernández de Kirchner, coined Singer the name “Vulture Lord” for his handling of defaulted Argentinian sovereign debt. Unwilling to pay Elliott Management the face value of the defaulted debt, the company attempted to seize the country’s assets like deposits with the US central bank, satellites preparing for launch, and a navy vessel off the coast of Ghana. They actually succeeded in taking over the vessel. In 2016, the Argentinian government paid them US$2.4 billion, 20.5 times their original investment.

Apart from the troubles with Argentina, they’re known for activist investing, finding poorly managed companies and lobbying for change to unlock greater shareholder value. Activist investors pursue this strategy through proxy fights, long slates, and litigation. Proxy fights and litigation are used to directly challenge management decisions. Long slate tactics seek to replace board members with individuals preferential to the activist investor’s viewpoint.

Activist investing has grown significantly. In 2013, 166 activist campaigns were launched according to Lazard’s 2018 Review of Shareholder Activism report. Last year, there were over 247. While campaigns are centered on US based companies, activist campaigns have become a global phenomenon with one third originating from Europe and Asia Pacific. Notable campaigns last year included Dell, Papa Johns, Campbells, Lowes, Xerox, Toshiba, Hyundai, and Barclays. Icahn Enterprises, Third Point Partners, Pershing Square Capital Management led by Carl Icahn, Daniel Loeb, and Bill Ackman, respectively, are some other famous activist investors.

Elliott Management initiated its campaign with AT&T by publicly releasing a 23-page letter to the Board of Directors, outlining the changes needed to be made at the company. They cite the telecom/media conglomerate’s 151.0% under performance of the S&P 500 since September 2009 as evidence of shareholder value lost. The investment management firm attributes this under performance to a muddled acquisition strategy. They tried acquiring T-Mobile in 2011, failing and having to pay a large breakup fee that propelled one of their closest competitors. Three years later, they acquired satellite television provider, DirecTV, for US$67.0 billion. Unfortunately, it coincided directly with the rise of streaming services. In 2018, they completed the acquisition of media conglomerate, Time Warner for US$85.0 billion. Many analysts have criticized the lack of synergies and strategic focus of a telecom merging with a media conglomerate. All of this distracted management from their core business and destroyed shareholder value. Overall, Elliott Management has taken a softer approach to the company than usual, trying to work with management instead of trying to remove them.

AT&T’s share price was up on the news of Elliott Management’s involvement in the company. While popular with some, activist investors have been frequently criticized for controversial tactics and their narrow pursuit of self-interest. Elliott Management’s latest campaign may be less controversial, however, it remains to be seen whether management will head their advice and if their strategy can be validated.

Featured photo by Tammy Strot.

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