'Activist' Investor Elliott Management Sells Stake In AT&T After Encouraging Mass Firings

from the employees-pick-up-the-tab dept

In AT&T executives' heads, the 2015, $67 billion acquisition of DirecTV and the 2018 $86 billion acquisition of Time Warner were supposed to be the cornerstones of the company's efforts to dominate video and online video advertising. Instead, the megadeals made AT&T possibly one of the most heavily indebted companies in the world. To recoup that debt, AT&T quickly ramped up its efforts to nickel-and-dime users at every opportunity, from bogus new wireless fees to price hikes on both its streaming and traditional video services.

This, in turn, wound up driving a customer exodus. In fact, AT&T has lost more than 8 million TV subscribers in just the last three years alone. Not exactly the kind of sector domination the company had in mind.

Last year, "activist" investors at Elliott Management began making a stink about AT&T's obsession with mindless merger mania. Not that it hurt consumers or misdirected funds away from network investment, mind you, just that the debt was dragging down the firm's $3.2 billion investment in AT&T stock. In response, AT&T forced its CEO to "retire," and the company, at Elliott's behest, greatly accelerated mass employee firings and customer service offshoring. AT&T's since fired more than 42,000 employees in just the last few years, despite a $42 billion Trump tax break AT&T promised would result in "thousands of new, high paying jobs," and billions more in regulator favors ranging from the death of broadband privacy rules to the dismantling of net neutrality.

Now it appears the moves were enough to give Elliott what it wanted. After raising a massive stink throughout much of 2019, the company this week quietly offloaded its entire stake in AT&T:

"The New York-based hedge fund liquidated its investment when it sold 5 million shares during the quarter that ended Sept. 30. It had first bought into the stock during the third quarter 2019, according to another filing."

Elliott wasn't entirely wrong. AT&T did fixate so much on merger mania it lost the forest for the trees and neglected its core focus: building and running networks. It also bungled its entry into the video streaming space with a befuddling array of different branding that confused even AT&T employees. It spent $150 billion to dominate a sector it's now barely making a dent in. Were I an investor, employee, or customer, I'd probably be pissed too.

The problem, of course, is that, as usual, it's the employees and consumers who actually pay the price for managerial incompetence. AT&T has a long history of cutting corners when it comes to network investment, then holding regulators and lawmakers hostage with empty promises that "X" (deregulation, merger approval, subsidies, tax breaks) will finally get AT&T to meaningfully invest into its own network. But these serious fiber upgrades never really happen because entrenched telecom monopolies, protected from accountability via regulatory capture, no competition, and their cozy relationships with U.S. intelligence, are, in effect, a perpetual, taxpayer subsidized con.

A con where, time and time and time again, executives and investors wind up somewhere sipping mojitos on a yacht, while customers and employees pick up the tab.

Filed Under: activist investor, investor, layoffs, tax breaks
Companies: at&t, elliott management

Will Wall Street Get In The Way Of Jack Dorsey's Lofty Plans To Turn Twitter Into A Protocol?

from the that-would-suck dept

A year ago, I was at a round table discussion, where someone was doing one of the standard rants we've all heard, about how big internet companies were evil because they were focused on profits over the health of their user base, etc. I pointed out that while this narrative had taken hold among many people outside of these internet companies, it didn't seem to reflect what I was hearing from those within those companies -- especially as they were investing heavily in "trust & safety" teams, including both hiring people and building technology, that would provide better overall experiences on the platform. Instead, I suggested, their complaint seemed to be more with Wall Street investors, and the short term profits that it demanded from many public companies. There are the Jeff Bezos/Amazon exceptions -- where he basically told Wall Street to go put their head in a bucket for many years while he re-invested in the business as they demanded profits -- but for the most part, public companies are put on a short leash, not so much by management expectations, but the demands of investors.

I'm thinking about that a lot again, following the news of the proxy fight over Twitter's management that was raised just recently. At the beginning of the month, it was revealed that Paul Singer's massive hedge fund Elliott Management had taken a large stake in Twitter, and wanted major changes, including getting rid of founder/CEO Jack Dorsey. A few days later, it was revealed that a deal was struck between Twitter and Elliott Management to keep Dorsey in charge... for now. However, it seems that the situations is fairly tenuous. Elliott Management now has a board seat, and a promise of some very tricky "growth" targets (especially tricky in the face of who knows what's coming with the economy during a pandemic).

The details of those metrics makes it seem clear that Elliott Management is forcing Twitter down a specific path -- one that is likely to make the user experience for Twitter users much, much worse:

As part of the deal, Twitter has committed to reach certain growth and revenue goals. It promises to grow its average number of daily users who can see ads by 20 percent or more in 2020. This is not impossible; in 2019, Twitter nosed past that threshold. But it may be tougher this year, what with a pandemic and maybe a recession. Twitter also vows to “accelerate revenue growth on a year-over-year basis and gain share in the digital advertising market.” (This will be tied to specific numbers as yet undetermined.) This bigger share would most likely have to come at the expense of Google or Facebook, which aren’t exactly pushovers. If Jack doesn’t perform, the committee won’t be happy.

This is crazy on multiple levels -- and seems likely to harm Twitter's long term objectives in a demand to focus solely on the advertising model to make it work. That's going to piss off users, and potentially drive down usage, just to make these Wall Street short termers happy.

My even bigger fear, however, is that this will make it nearly impossible for Dorsey and Twitter to follow through on the company's stated belief in moving to an open protocol, rather than remaining a proprietary platform. Moving to a protocol, while potentially opening up new revenue streams, would likely cause at least a short term problem for Twitter's traditional ad revenue business. And given the short term nature of the investor's mindset, they seem unlikely to allow the company to really push forward with such a radical change. And, of course, if Dorsey is eventually pushed out by the board, whoever takes over may not care at all about the open internet and a protocols-based approach. I think that would doom Twitter over the long run, but Wall St. doesn't much seem to care about that.

Hopefully this isn't how things play out, but it is concerning. It's also a reminder that whenever people insist that it's the folks at the internet companies driving for profit over all else, it might actually be Wall Street and the broken structure of our public markets, that basically require a short-term, profit-maximization model over a long-term sustainable model.

Filed Under: advertising, jack dorsey, paul singer, platforms, profits, protocols, short term, wall street
Companies: elliott management, twitter