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Elliott Management Corp. disclosed a new $3.2 billion position in AT&T Inc., taking on one of the nation’s biggest and most widely held companies with a plan to boost the telecommunications giant’s share price by more than 50% through asset sales and cost-cutting.

The New York hedge fund, run by billionaire Paul Singer, outlined a four-part plan for the company in a letter to its board Monday.

The proposal calls for the company to explore divesting assets including satellite-TV provider DirecTV, the Mexican wireless operations, pieces of the landline business, and others. It urges AT&T, led by Chief Executive Officer Randall Stephenson, to exit businesses that don’t fit its strategy, run a more efficient operation and stop making major acquisitions. Elliott said it would also recommend candidates to add to AT&T’s board.

AT&T shares (T) surged as much as 7.8% to $39.09 in early trading. If those gains hold into regular trading, it would be the highest the stock has reached since early 2018.

An AT&T spokesman had no immediate comment.

Elliott said the investment — among it largest to date — was made because the company is deeply undervalued after a period of “prolonged and substantial underperformace.” It argued this has been marked by its shares lagging the broader S&P 500 over the past decade. It pointed to a series of strategic setbacks, including $200 billion in acquisitions, the “most damaging” of which was its $39 billion attempted purchase of T-Mobile. That deal resulted in the largest breakup fee of all time when it was blocked by the government in 2011 — about $6 billion in cash and assets.

“In addition to the internal and external distractions it caused itself, AT&T’s failed takeover capitalized a viable competitor for years to come,” Elliott said.

The hedge fund also criticized the subsequent acquisitions of DirecTV and media giant Time Warner Inc.

While the position in AT&T is large, Elliott may have a difficult time pushing for change unless it gets other investors to back its stance. Its newly disclosed stake in AT&T represents just about 1.2% of the company’s total market value.

Elliott’s plan also calls for aggressive cost-cutting measures that aim to improve AT&T’s margins by 3 percentage points by 2022. Elliott said in the letter it has identified opportunities for savings in excess of $10 billion but the plan would only require cost cuts of $5 billion.

Elliott is also calling for a series of governance changes, including separating the role of chief executive officer and chairman — currently held by Stephenson — and the formation of a strategic review committee to identify the opportunities at hand.

Transformative Deals

With a series of deals over the past several years, AT&T has transformed itself from a traditional telecom company into a multimedia behemoth. The company bought satellite-TV provider DirecTV for $67 billion in 2015, leaping into first place among U.S. pay-TV companies. Elliott criticized that deal in its letter as having come “at the absolute peak of the linear TV market.”

AT&T then moved firmly into entertainment and media with the $85 billion acquisition of Time Warner Inc. in 2018. That deal brought marquee assets such as HBO, CNN and Warner Bros.

“Despite nearly 600 days passing between signing and closing (and more than a year passing since), AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner,” said Jesse Cohn, a partner at Elliott, and Marc Steinberg, an associate portfolio manager, in the letter. “While it is too soon to tell whether AT&T can create value with Time Warner, we remain cautious on the benefits of this combination.”

High Debt

AT&T is the most indebted non-financial and non-government-owned company in the world, with $194 billion in total debt as of June, a legacy of Stephenson’s steady clip of large acquisitions. The CEO used to keep a spreadsheet of a few dozen companies that he studies on his tablet to plan his next big deal, people familiar with the matter told Bloomberg in 2016.

The stock is among the top 20 most widely held U.S.-traded companies among institutional investors, according to data compiled by Bloomberg. That’s partially because of its steady dividend, which totaled $2.04 a share last year, giving investors a reliable payout in good times and bad.

Phone companies have also traditionally been considered a safety net for investors in bad economic times because people still need to communicate, though AT&T’s exposure to the landline business has more recently been a drag on profits because more people are shutting off their home phones and going wireless-only.

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