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AT&T reaches ceasefire with activist as TV rejection Worsen

AT&T Inc.

struck with a ceasefire with an activist investor who had pushed the telecom giant to restore the strategy and said the CEO will be at the helm through next year.

Longtime President and CEO

Randall Stephenson

has used major acquisitions of Time Warner and DirecTV to make the company a major media provider, a move that activist Elliott Management Corp. had questioned by.

"I think we are on the verge of something truly remarkable," Stephenson said Monday in a conference call with analysts. "I have every intention of being here," he said.

The company reported on another quarter that revealed the challenges of going beyond its traditional telephone business. Overall, the quarterly results and revenues were down from a year ago. AT & T's core phone business got subscribers, but more than 1

million customers left the DirecTV device.

AT & T's peace agreement with Elliott includes a commitment to regular share repurchases and a plan to appoint two new board members. The Board, chaired by Mr. Stephenson, has 13 members. AT&T will nominate the new hires to replace retired board members over the next 18 months.


How does AT & T's deal with activist investor Elliott affect the company's future? Join the conversation below.

The company promised to conduct a review of the portfolio, avoid major acquisitions and pay down debt from the acquisition of Time Warner in 2018. AT&T also agreed to separate the roles of chairman and CEO when Stephenson retires.

Elliott, for its part, has no limitations on the ability to publicly criticize the company in the future. In a settlement, an activist investor also makes commitments, such as promising not to run a power of attorney or stay out of the public in exchange for some of the demands.

Also unusual – fast resolution. Elliott published his 23-page letter just seven weeks ago. Back then, the Elliott partner who runs the hedge fund's US equity activism,

Jesse Cohn,

had never met Mr. Stephenson, according to a person familiar with the matter. Since then, the two parties spoke several times a week and met in both New York and Dallas, this person said.

The agreement solves problems for both sides. AT&T avoids a distracting battle with Elliott, an aggressive investment fund led by billionaire

Paul Singer.

Elliott, in turn, can profit from the concessions the company offers without having to start a costly proxy battle.

Shares in AT&T rose 4.6% in morning trading on Monday.

In the third quarter, the Dallas Company Entertainment Division casts 1.4 million pay-TV customers. The losses included 1.2 million satellite and fiber-optic TV customers and a decline of 195,000 subscribers to AT&T TV Now, the network channel bundle once called DirecTV Now.

AT & T's wireless wing delivered a smoother performance, noting a gain of 101,000 subscribers in postpaid phone subscribers, a valuable category of customers who pay for service at the end of the billing cycle. One year earlier, the company reported 69,000 net additions of postpaid accounts.

Rival Verizon Communications Inc. last week said it made a profit of 444,000 in postpaid telephone connections in the third quarter.

T-Mobile US Inc.

is expected to report quarterly figures later Monday.

AT&T reported a profit of US $ 3.7 billion, or US $ 50 per share, in the last quarter, down from US $ 4.72 billion, or US $ 65 per share, the previous year. Revenue fell 2.5% to $ 44.6 billion.

Revenue fell over the company's most important business units. Revenues in the WarnerMedia unit fell 4.4% to $ 7.8 billion after unusually high receipts in the previous year.

New Street Research analyst

Jonathan Chaplin

said the quarterly results missed Wall Street projections in almost every category, but the company compensated for it with a profit outlook through 2022 that beat expectations "of a land mile."

Warner-purchase. The plan requires AT&T to spend 50% to 70% of its free cash flow after paying dividends on share repurchases and commit to "no major acquisitions."

Mr. Stephenson said the financial roadmap had the benefit of input from investors like Elliott. The Wall Street Journal said last week that the two sides were giving talks on a number of steps AT&T could take to resolve the hedge fund's complaints about its performance and strategy.

As the company appears to be divesting non-assets, Stephenson said in Monday's call that "there are no holy cows." When it comes to DirecTV, he said struggling with the satellite TV business will remain the key to AT & T's strategy, although he added, "We will evaluate several options, including partnerships" and other structures as needed.

AT&T became what the CEO calls a "modern media company" in 2018 through his $ 80 billion purchase plus Time Warner, the owner of Warner Bros. studios, Turner cable channels and HBO. Leaders said the deal, which followed a legal battle with the federal government over whether it should be allowed, would help the telecom giant attract and retain customers by offering them top movies and TV shows.

The company has spent the past year developing a new subscription service called HBO Max, an online package of content from the premium TV brand as well as Warner Bros. movies and TV audience favorites such as "Friends." The company will demonstrate the new service Tuesday at a Burbank, California, event following several setbacks that pushed the product's full commercial launch into this spring. Stephenson said the company expects the new service to eventually have 50 million domestic subscribers.

Its challenge is being amplified by competing technology and media companies that plow billions of dollars into streaming video sites that will make the leap on HBO Max. Apple Inc. will begin showing the first TV series produced for its $ 4.99 per month TV + service on November 1.

Walt Disney Co.

will follow Nov. 12 with Disney +, a library packed with popular movies from Marvel, Star Wars and its namesake studio for $ 6.99 a month.

AT&T, the US mobile phone company No. 2 behind Verizon, ended the third quarter with 93 million domestic wireless subscribers, excluding connected devices and Mexico. It remained the largest US pay-TV distributor, with 21.6 million video subscribers, ahead of cable operator Comcast Corp.

AT&T has spent most of 2019 focusing on paying down the debt it incurred through the purchases of Time Warner and DirecTV. The reported net debt, which was as high as $ 170 billion last year, was down to $ 159 billion at the end of the third quarter.

Property turnover has helped the company predict less debt in the future. The company said on Sunday that it will sell its minority stake in

Central European Media Enterprises Ltd.

, a collection of TV broadcasters, to a Czech investment company for $ 1.1 billion in cash. AT&T also plans to sell the mobile phone and landline infrastructure in Puerto Rico and the US Virgin Islands for about $ 2 billion to

Liberty Latin America Ltd.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Corrie Driebusch at corrie.driebusch@wsj.com

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