Illustration: Sarah Grillo/Axios

AT&T on Monday agreed to make major changes after a six-week standoff with activist investor Elliott Management.

The big picture: Current AT&T management stays, at least for now, but only after promising to boost buybacks, committing to lofty earnings targets, and promising to find someone new to run its media unit.

Investors were clearly pleased by the ceasefire, with shares closing up more than 4%. It has four major components:

  1. Leadership: AT&T will split the role of chairman and CEO upon the retirement of Randall Stephenson, who will stay on through the end of next year. It will also add two additional board members, one with expertise in technology.
  2. Debt: AT&T has agreed to sell around $10 billion of non-core assets next year, as part of a three-year plan to retire all of the debt taken on via the Time Warner purchase. It also won't make any large new acquisitions.
  3. Profit: AT&T is committing to generate earnings of between $3.60–$3.70 per share next year, and $4.50–$4.80 per share by 2022.
  4. Growth: AT&T will invest up to $2 billion in HBO Max next year, and $1 billion each year following, but sources say that it could reduce those numbers if the aforementioned profit goals aren't being met.

Between the lines: Sources say that AT&T also launched a formal search for the next CEO of WarnerMedia, the rebranded Time Warner media unit that includes HBO, Turner, and Warner Brothers.

  • Elliott had originally complained about Stephenson giving longtime ally John Stankey the job, arguing that Stankey had no media experience and already had enough on his plate as newly-named president and COO of AT&T.
  • Now someone new will get picked, and Stankey will need to compete within an internal and external search process for the right to succeed Stephenson.
  • There had been whispers that Elliott was interested in replacing Stephenson sooner, but he and Elliott have spent lots of time together over the past month, during which the CEO convinced Elliott that he is determined to leave a higher stock price as part of his legacy.

AT&T's pledge to sell $10 billion of core assets next year comes on the heels of a number of 2019 divestitures. Just this past month the company announced plans to:

  • Sell $680 million worth of U.S. wireless towers to a private equity firm, via a sale-leaseback transaction.
  • Sell its stake in European broadcaster Central European Media Enterprises Ltd. for about $1.1 billion in cash.
  • Sell its wireless and wired assets in Puerto Rico and the U.S. Virgin Islands for about $2 billion to Liberty Latin America.

Be smart: AT&T has a much higher debt load than many of its media and telecom competitors, but analysts don't think it's unmanageable, so long as it begins to systematically address its debt problem now.

The bottom line: Elliott is getting almost everything it wants from AT&T, so what happens from here will be as much about its reputation as its returns.

Editor's note: This article has been updated to clarify that AT&T will appoint two new directors. It originally said Elliott would have a say in the candidates.

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