The head of AT & T planned his exit. This triggered an activist challenge.

The next day, Elliott Management released a 23-page report that cast doubt on the logic of DirecTV's $ 49 million takeover by AT & T in 2015, shortly before the acceleration of the cord cut, and his $ 81 billion contract signed last year for the acquisition of Time Warner, Warner Bros., only to replace almost all of his experienced entertainment bosses.

In his report released on Monday, Elliott also wondered whether the alleged successor of Mr. Stephenson could successfully integrate the conglomerate into a force capable of competing with Google's advertising tastes and winning an expensive battle for continued supremacy with rivals like Netflix Inc. and

Walt Disney
Co.

The plans for Mr. Stephenson's triumphant exit, starting next year, are now threatening to turn into a month-long battle over the leadership of the $ 280 billion telecommunications company, and test the loyalty of the board to its long-term vision.

Elliott's challenge pits the 59-year-old CEO of AT & T with a 39-year-old Wall Street executive who is known to have lobbied his targets to disrupt their operations.

Mr. Stephenson has spent most of his dozen years as Chair of the Board building a modern media company that will remain his legacy. The veteran of the company for three decades – who said that the "estate" of HBO was one of his favorite TV shows, has expressed interest in resigning next year, said people who knew well his thought.

Mr. Cohn wants radical changes despite the fact that Elliott holds a $ 3.2 billion stake, or about 1%, in AT & T's stock and options. Other activists have used similar issues. to shake up companies as big as possible.

Procter & Gamble
Co.

and

General Electric
Co.

, often taking place on the council.

Mr. Cohn, senior associate of Elliott equity activism, told other investors he wanted AT & T to consider selling DirecTV and other assets, as well as the opportunity to choose its next one. chief. Elliott is expected to decide by the end of January whether to initiate a proxy fight, but Cohn told Stephenson that he wants to work together.

AT & T said it was eager to make contact with Elliott and was already pursuing some of the measures outlined in its report: "AT & T's Board of Directors and Management Team firmly believe that Targeted and successful execution of our strategy is the best way forward. "

Stephenson, who declined to comment, defended his strategy, saying AT & T is stepping up its programming investment, helping HBO cope with a growing number of streaming services and leveraging its customers' data. telephones and televisions to compete with the biggest advertising platforms. He stated that the AT & T subscriber group offered its multimedia units a large distribution system.

"The business model must change," he said after winning an antitrust case last fall to buy Time Warner. He will have the opportunity to make his point of view to investors Tuesday when he will speak at a

Goldman Sachs

conference in New York.

Despite the prestigious acquisitions, AT & T's shares have remained unchanged since Mr. Stephenson took office. They reached a multi-year low close to $ 27 in December, investors worrying about the debt of more than $ 160 billion accumulated by the company during its acquisitions. The shares had gained 33% this year before Elliott issued his letter.

Sam Hendel, chairman of Levin Easterly Partners, which holds about 3.5 million shares of AT & T, said he saw potential, especially in wireless, as 5G networks are growing. Time Warner is a great asset, he said, but he agreed with Elliott that AT & T needed to add media experience to the board of directors and to the direction.

Elliott, which is led by billionaire

Paul Singer

and manages about $ 38 billion, is known for its 15-year crusade aimed at getting Argentina to make payments for defaulting bonds and to fight with general managers, including at

Arconique
Inc.

The Communications Workers of America, a union representing about 100,000 AT & T employees, said the pressure from Elliott would reduce its workforce. "Anyone who thinks that Paul Singer and Elliott Management intend to" provide significant benefits "to AT & T's customers is unaware of the destruction that this vulture hedge fund has left in its wake," he said. the president of CWA.

Chris Shelton

I said.

Conglomerates have fallen out of favor on Wall Street, where many investors now prefer nimble and focused companies. This year's investors have appreciated AT & T, which has about 30% higher revenues, a leading Hollywood studio and popular cable channels, a little more than

Verizon Communications
Inc.

which has largely stuck to the wireless business. Nowadays, AT & T is more like

Comcast
Corp.

, a cable operator who owns NBCUniversal and Sky.

"When I was there, our goal was to become the largest and best telecommunications company in the world and we stayed true to what we knew," said Edward Whitacre, who from 1990 to 2007, led AT & T by transforming AT & T into a national giant … taking regional bells. "But the time has passed and maybe they've made the decisions they've had to make. "

Next in line

Last month, John Donovan, one of AT & T's top executives, announced his intention to retire after discovering he had not landed the top job. Shortly thereafter, the AT & T Board met to approve the promotion of John Stankey, one of Mr. Stephenson's long-time allies, to the newly created position of President and Chief Operating Officer, thereby making him apparent.

Mr. Stankey, 56, joined one of the Baby Bells in 1985 and rose through the ranks. Mr. Stephenson and he share an established friendship over more than two decades, as the regional telephone company became the second largest mobile operator in the United States.

Mr. Stankey supported the contract with DirecTV and inherited the highest position posted here and at Time Warner, where he took the reins last year. The movement has put aside the veteran executives of each company. According to former leaders, he has run into those below him, and some have considered it imperious. HBO boss

Richard Plepler

and Turner Chief

David Levy

left.

The council voted unanimously to approve the promotion of Mr. Stankey, which prompted Elliott to publicize its participation, according to people close to the file. The hedge fund has been studying AT & T since the Time Warner deal. He felt that Mr. Stankey's promotion of overseeing both the media and the company-wide operations was hasty, people said.

"I'm a Stankey fan," said Mr. Whitacre, the former CEO of AT & T, who described him as a smart strategic thinker.

According to relatives of the company, AT & T will oppose any attempt to dictate its executive suite. Board members believe it's possible to improve AT & T's performance, but support Stephenson's strategy and praise Mr. Stankey's leadership, according to a person familiar with board thinking of Directors.

"There are not many outsiders who would be obvious candidates to run a complex communications and media business," said the person. "Many media company executives do not know anything about the operation of a telecommunication company."

This suggests the prospect of a long and long battle between the corporate giant and the hedge fund.

AT & T works with Goldman Sachs bankers to defend against a potential proxy fight.

"I do not think there will be a lot of management change as long as there is no blood on the street," said an investor familiar with AT & T's leadership.

Dramatic series

When Mr. Stephenson took the helm of AT & T in 2007, there was no more Baby Bell to adopt. The regulators foiled an attempt to buy in 2011 a wireless competitor

T-Mobile USA
Inc.

Seeking growth and cash to meet AT & T's needs, including an annual dividend of nearly $ 15 billion, Mr. Stephenson turned to entertainment.

He concluded DirecTV's purchase in 2015, which turned out to be close to the top of the pay-TV market. Internal disagreement broke out over the prospects of the newly enlarged company, which had 26 million US subscribers. A board-level presentation in early 2014 warned that the number of homes equipped with pay TV was "probably at its maximum and that it should decrease."

AT & T's overall television business declined and losses accelerated. Analysts expect AT & T to end the year with less than 22 million pay-TV subscribers in the United States.

Elliott is seeking shareholder support to induce AT & T to sell the DirecTV business, according to people close to the deal. Industry mergers and acquisitions experts said the value of the fund would likely be less than $ 25 billion, excluding debt, about half the amount paid by AT & T.

If it was put on sale, there would be few interested buyers. Chief Financial Officer AT & T

John Stephens

said Wednesday that a connection between DirecTV and its satellite competitor

Dish Network
Corp.

has already been tried. "From a regulatory point of view," he said, "that did not work out".

Former leaders say that MM. Stephenson and Stankey also miscalculated the demands of running a media company over a telecommunications company.

AT & T has tried to impose a phone company culture on a creative company, said a former Time Warner executive.

A spokesman for WarnerMedia said the top executives who had left the company had all left for various reasons, and he cited many writers, directors and other creative talents working for the media unit.

Mr. Stankey, along with his promotion to the position of Chief Operating Officer, remains the Chief Executive Officer of WarnerMedia. He replaced the leaders of HBO, Turner and Warner Bros., seeking to break the fiefs and develop a unique strategy. He brought in Robert Greenblatt, former NBC Program Manager, and reduced the number of people working for Time Warner to less than 100.

Elliott blamed AT & T for leaving much of his leadership behind DirecTV and Time Warner, a sentiment shared by some current and former leaders. The AT & T pillars disagree, stating that key people continue to work in both units.

This week, Mr. Stankey signed a content partnership with Hollywood director and producer J.J. Abrams, who signed with WarnerMedia on other contenders, including Apple, said a person familiar with the deal.

Stankey's biggest initiative, a streaming service that can compete with Netflix, as well as new offers from

Apple
Inc.

and Disney, has not been launched yet.

Shortly after the conclusion of the Time Warner case, Mr. Stankey detailed his project of a three-level streaming service, with progressive pricing and varied content. He asked little information to the senior officers of Warner Bros. and HBO, occulted them during the announcement, said people familiar with the process.

In June, Mr. Stankey had to go back. The three-level plan was confusing for industry and society, and its competitors offered simple, single-price offers. AT & T is now planning a service called HBO Max, which will include programs from HBO and other Warner content, including "Friends". It should cost more than $ 15 a month, according to people familiar with the project.

Within the company, some executives have been baffled by the changing strategy of streaming. The HBO Max strategy sessions in June were meant to clarify the company's approach. Still, many participants left many questions unanswered on topics ranging from pricing to programming, according to someone familiar with the subject.

-Lillian Rizzo and Joe Flint contributed to this article.

Write to Drew FitzGerald at [email protected], Shalini Ramachandran at [email protected] and Corrie Driebusch at [email protected]