Around Wall Street, smart people have learned two things in the last decade. One, pray you never get a letter from Jesse Cohn. Two, you ignore Cohn at your own peril. For those of you who have not heard of him, Cohn is the badass Elliott Management activist-hedge-fund manager who has built an impressive record of getting his way with corporate boards that may at first underestimate him or fail to act on his “suggestions” on how to improve the companies they oversee.
He also has been known to help convince boards of directors to defenestrate the C.E.O.’s that fail to heed his requests, which usually appear in the form of lengthy, carefully crafted letters that are based on years of research and often include the idea that the C.E.O. in question should depart. This is a lesson that Randall Stephenson, the longtime chairman and C.E.O. of AT&T, may have to learn the hard way.
Time for a Little Corporate Disruption
At the moment, the 39-year-old Cohn has made AT&T, the telecom-and-media behemoth that may be one of the most recognized names in American business, his latest target for a little corporate disruption. Over the past year or so (the firm declines to say exactly), Elliott—which is a $38 billion, multi-strategy hedge-and-private-equity fund—has built a $3.2 billion stake in AT&T. Granted, that is barely more than one percent of AT&T’s $271 billion market value. But on Wall Street, it gives you the power to rattle a few cages. Beginning with Stephenson’s.
Cohn believes AT&T is “deeply undervalued” and has been mismanaged by Stephenson and his team since he took over, 12 years ago. Cohn wants AT&T to sell any number of its less strategic assets, among them a home-security business and regional sports network, as well as Sky Mexico and a Latin American pay-TV business. He, along with many others, also thinks AT&T bungled the $67 billion acquisition of DirecTV and that too should be considered for sale. He believes now would be a good time for the company to buy back its undervalued stock, especially since the dividend payment on the stock—a yield of 5.5 percent or so—is higher than the interest payments on its roughly $180 billion of debt. It’s one of the few instances in which he thinks buying back stock makes more sense than paying down debt.
Elliott and Cohn want the company to focus on its irreplaceable assets that give it a unique advantage in the market, such as its nationwide wireless business; what stands to be a superior 5G next-generation wireless network; and the recently acquired Time Warner businesses, such as Warner Bros., HBO, CNN, and Turner Broadcasting. And, probably most inflammatory, Cohn has made no real secret of his desire to eviscerate AT&T’s C.E.O.-succession plan. Although the 59-year-old Stephenson has no immediate plans to depart, he recently designated the 56-year-old John Stankey as his successor.
After Stankey’s long career inside AT&T, including leading the acquisition of DirecTV, Stephenson put him in charge of running Time Warner (since rebranded as WarnerMedia) shortly after AT&T closed the $109 billion deal, in June 2018. Stankey’s elevation prompted the exit of many of Time Warner’s top executives, including the former C.E.O. and C.F.O.; Richard Plepler, the well-regarded head of HBO; John Martin, the head of Turner; and Kevin Tsujihara, the head of Warner Bros. (Although he had some #MeToo issues that hastened his departure.) Nevertheless, on September 3, Stephenson tapped Stankey as his heir apparent, putting him in charge of both WarnerMedia and making him AT&T’s president and chief operating officer.
John Stankey’s elevation prompted the exit of Richard Plepler, the well-regarded head of HBO.
Cohn wants Stankey gone. And, as we said, Cohn usually gets what he wants. For instance, in 2016, after Elliott took a stake in Arconic, a manufacturer of aluminum, nickel, and titanium that was previously spun out of Alcoa, Elliott wanted Klaus Kleinfeld, the Arconic C.E.O., dismissed. They campaigned relentlessly for that outcome. There were even allegations that Elliott had hired private investigators to go through Kleinfeld’s trash and talk to his neighbors, to try to smear him. “Elliott is the ugly face of America,” a spokesman for Kleinfeld once said. (Elliott executives declined to comment on the specific allegations but do say they have made changes in their use of outside consultants in these kinds of battles and that the consultants’ activities must adhere to Elliott’s strict rules about their behavior.)
In the end, Cohn got his wish when Kleinfeld, perhaps cracking from Elliott’s relentless pressure, self-destructed. In April 2017, Kleinfeld wrote a snarky, three-paragraph letter to billionaire Paul Singer, Elliott’s founding partner and Cohn’s boss, implying he would reveal an incident about Singer at the 2006 World Cup, in Germany. (Supposedly, he was seen partying heavily and singing in a public water fountain.) Along with the letter, Kleinfeld enclosed a soccer ball.
Singer’s lawyers wrote a letter to the Arconic board about Kleinfeld’s letter that read, in part, “While much of what it says doesn’t make sense, we do understand Dr. Kleinfeld to be making veiled suggestions that he might intimidate or extort Mr. Singer. This is highly inappropriate behavior by anyone and certainly by the CEO of a regulated, publicly traded company, in the midst of a proxy contest, and it raises a number of obvious issues.” Days later, Kleinfeld was gone. The Arconic board cited his “poor judgment” in sending the unauthorized letter to Singer. Elliott still has the soccer ball that Kleinfeld sent lying around somewhere in its office. (Kleinfeld could not be reached for comment.)
Cohn also managed to get rid of Jonathan Bush, a relative of two presidents of the United States and the longtime C.E.O. of Athenahealth—another Elliott activist target. Cohn wanted Bush gone, believing he was not the right C.E.O. for the company. Bush fought Cohn’s aggression as long as he could. But, in the end, he crumbled. The fatal blow came in the form of curiously timed stories that emerged in the press, stories that revealed long-buried and unflattering allegations drawn from files in a Boston courthouse. In the 10-year-old files, his ex-wife, Sarah Selden, claimed that Bush had physically and verbally abused her. A Daily Mail article appeared, detailing the allegations. (They have reportedly since reconciled and parent their five children together. Bush declined to be interviewed for this article.)
Cohn also managed to get rid of Jonathan Bush, a relative of two presidents of the United States.
Although Cohn denies planting the stories—he thinks Elliott would have won its fight with Athenahealth regardless—Selden told The New Yorker, in a 2018 profile of Singer, that she believed Elliott must have been behind the leaks. “You want Jonathan out as a C.E.O. and you can’t find enough on him in the workplace, which is the only thing that should be relevant, so you dig this out—something that had nothing to do with work, and plaster it all over the tabloids?” Selden said. “I felt like our family was used for financial gain, so Elliott could get a better stock price and restructure the company the way they wanted to restructure it. We were a pawn.”
Bush resigned as Athenahealth C.E.O. in June 2018. (He now is executive chairman of Firefly Health, a health-care start-up, in Boston.) Five months later, Elliott announced that it and a partner, Veritas Capital, were buying the company for $5.7 billion.
Cohn’s touch was felt in the halls of eBay this week as well. Earlier this year, after Elliott took a $1.4 billion stake in the online company, Cohn assumed a seat on its board, where he immediately began to ask questions. Now, Devin Wenig, its president and C.E.O., has resigned.
Pugnacious, Determined, and Thorough
It’s not exactly clear where Cohn gets his combativeness. Around the offices of Elliott, he has a reputation for being pugnacious, determined, and thorough. The mantra at the firm is “Just don’t lose any money,” and Cohn rarely has. Married, with two young children, he gets up at some ungodly hour every day to train for triathlons. (In 2017, with a time of two hours and 45 minutes, he finished the Mighty Montauk Triathlon in 81st place overall, 13th in his division; he finished 18th overall in a triathlon last year in northwest Connecticut.) Around the office, he dresses more like a Silicon Valley technologist than like a Wall Street banker. He’s made the reply speed to an e-mail into a competitive sport.
Cohn made partner two years ago and lives in a $30 million Robert A. M. Stern–designed Manhattan duplex, but he grew up in Baldwin, New York, on the South Shore of Long Island. He has a brother who lives in Los Angeles and is a director and writer of B horror films. His father is a lawyer and entrepreneur and his mother is an artist. Cohn was also entrepreneurial. At Baldwin High School, he began making money by building Web sites; he spent a summer at programming camp in Massachusetts. At Wharton, the business school at the University of Pennsylvania, he continued to build Web sites as a side hustle and graduated summa cum laude with an undergraduate degree in finance in 2002. From Wharton, Cohn got a job at Morgan Stanley, as an investment-banking analyst in the firm’s M&A group, a two-year program that often leads to higher-paying jobs at private-equity firms.
Cohn lives in a $30 million Robert A. M. Stern–designed Manhattan duplex.
But that was not for Cohn. Instead, he joined Elliott in 2004 as a research analyst, and focused on distressed companies as well as undervalued technology companies. He thought the firm sounded like an interesting place to work. Singer might have said hello to him on his first day on the job.
Cohn scored for Elliott with his first deal. He bought a stake in Enterasys Networks, a computer-networking company that had once been part of Cabletron Systems, an early competitor of Cisco Systems. The company’s whole pitch was that it had a more secure switch than its competitors. Cohn dug in, and spoke to industry experts and users. He discovered that customers were incredibly loyal and believed the Enterasys switch was more secure. He bought 10 percent of Enterasys for $12 million. He urged the company’s board of directors to sell the company. Eventually it was sold to a financial buyer. Elliott cashed out.
His next big score was with Metrologic Instruments, a bar-code-scanning company. Cohn took an equity position and then convinced the C.E.O. to take the company private with Francisco Partners, a buyout firm, for $420 million. Elliott kept a 20 percent ownership stake in the private company. Some two years later, it was sold to Honeywell for $720 million. Elliott made a small fortune.
Son of a “PowerSeller”
That’s when Cohn decided to make a business out of activist investing. He has made more than 100 activist investments since then. In addition to AT&T, Arconic, and Athenahealth, Elliott invested more than $1 billion in EMC, the enterprise-computing giant, and then pushed for both the spinoff of VMware and then EMC’s $67 billion merger with Dell (it remains one of the largest shareholders in Dell); it invested $1.4 billion in Cognizant Technology Solutions and won an agreement from the company to appoint three independent directors; it pumped $1.3 billion in SAP, the German enterprise-software developer; and in January it put $1.4 billion into eBay and urged it to sell StubHub and its classifieds business. (That investment has the ironic twist that Cohn’s mother has been an eBay “PowerSeller” of jewelry for years and helped her son with the due diligence on the company.)
Cohn’s strategy has never varied. He looks for companies that meet four criteria: they have an unequivocal reason to exist, the world needs and wants what they provide, they are undervalued, and their operations can be improved. Once he finds them, he and his team of analysts, consultants, and investment bankers prove out the need for the changes he demands as a result of extensive research. In that sense, AT&T is no different than Enterasys or Metrologic. It’s just much, much bigger in every way.
His September 9 letter to the AT&T board of directors was his usual mixture of analysis sprinkled with formidable criticism, a dash of praise, and a number of concrete suggestions designed to improve the stock price. It’s Cohn’s largest single investment to date. Even though he likes the assets, he was especially critical of the strategic logic behind AT&T’s $109 billion acquisition of Time Warner. “AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner,” he wrote. “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. We think that, after $109 billion and three years, we should be seeing some manifestations of the clear strategic benefits by now.” He then quoted Jeff Bewkes, the former Time Warner C.E.O., who said the vertical integration of Time Warner and AT&T was “a fairly suspect premise.”
He was especially critical of the strategic logic behind AT&T’s $109 billion acquisition of Time Warner.
He did his best to look at the bright side. “AT&T has nearly been abandoned by shareholders, and understandably so,” he wrote. “However, the truth remains that AT&T has irreplaceable assets, enormous earnings power and an ability to win in key markets.” He is optimistic the investment will be a good one, especially if the board listens—in closing, he asked them for a meeting—and also if the company abandons Stankey.
So far, Stephenson is being a bit cagey and is defending his choice of Stankey. But he was also surprisingly diplomatic. In his first public comments since Cohn wrote his letter, delivered at a September 17 Goldman Sachs investor conference, Stephenson credited Cohn with making a worthwhile suggestion that AT&T might consider buying back its undervalued, high-dividend stock rather than paying down more of its $180 billion of debt. And reportedly, AT&T is willing to consider dumping DirecTV. But Stephenson didn’t give an inch on Stankey. “As we thought about who’s going to run this play for the next couple of years, it was a very short list and John Stankey quickly rose to the top,” Stephenson said, while also making clear the board had not asked him to leave, at least not yet.
The plot thickened considerably on Tuesday after Stankey gave an unexpected interview to The Wall Street Journal. Not only did he say AT&T would be keeping DirecTV; he also defended his strategy for the recently re-christened WarnerMedia, and made clear he has no intentions of going anywhere—except, ultimately, to AT&T’s corner suite.
Cohn isn’t saying whether he has arranged for a meeting with the AT&T board or with Stephenson, or whether he will back down from demanding Stankey’s departure as the price of peace with AT&T. He seems confident that sooner or later the AT&T board will come to the right answer. His answer. What is absolutely clear from his past 15 years at Elliott: Cohn will get his way. And if he doesn’t? He’ll put up one helluva fight and then get his way.
William D. Cohan is a writer living in New York