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UPDATE 2-Elliott queries AT&T deal for Time Warner, calls for asset sales

Supantha Mukherjee

(Adds Trump tweet, background on Time Warner purchase)

Sept 9 (Reuters) - AT&T Inc shareholder Elliott Management Corp on Monday questioned the wireless carrier's $85 billion takeover of Time Warner and called for it to sell non-core businesses to boost its stock price, driving shares in the company up 10%.

The hedge fund group, one of the United States best known activist investors, called the telecoms group "deeply undervalued" and said with the right changes over the next two years it could be worth almost double its current share price.

Elliott, which has an interest in AT&T together worth about $3.2 billion, gave a list of possible businesses the group could sell to generate funds without listing any of its Time Warner assets.

Shares of the company, which closed at $36.25 per share on Friday, rose 10% in trading before the bell.

"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," Elliott said in a letter to the company's board of directors.

"AT&T can unlock significant value by focusing its asset portfolio, improving operational performance, instituting clear capital priorities, and enhancing leadership and oversight."

President Donald Trump, who questioned the Time Warner deal while it was being examined by U.S. regulators, welcomed the intervention of Elliott and called for it to make changes at its CNN network.

Elliott, which oversees $35 billion in assets, has waged successful campaigns for major change at firms including EBay Inc, software firm SAP and Telecom Italia. It said its investment in AT&T was its largest ever.

HBO COMPETITION

The Time Warner deal, first announced in October 2016, took nearly two years to close as it faced intense scrutiny from antitrust authorities and was the fourth largest deal ever attempted in the global telecom, media and entertainment space.

Elliott did not go into detail on any missteps it saw in the deal, which gave AT&T control of HBO, CNN, TBS and TNT networks, as well as the Warner Bros film studio, producer of the "Batman" and "Harry Potter" film franchises.

HBO is in the process of launching its own streaming service to take on the likes of Netflix Amazon.com Inc's Prime video and upcoming services from Walt Disney and Apple Inc.

The hedge fund, however, listed businesses including home security, DirecTV, regional sports networks, CME, Sky Mexico, its Latin American pay TV business (Vrio), Puerto Rican operations and other units as possible sale candidates.

It said AT&T should also appoint third-party advisers to evaluate its operations and organizational structure, with a focus on eliminating inefficiency and creating a faster-moving organization.

AT&T, which did not immediately respond to requests for comment, has missed revenue expectations five times in the past eight quarters, according to Refinitiv data.

Elliott said a strategic review will help AT&T to rapidly pay down debt through divestment and increase its financial profile. (Reporting by Vibhuti Sharma and Supantha Mukherjee in Bengaluru; Editing by Shinjini Ganguli and Patrick Graham)