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UPDATE 5-Elliott Management calls for AT&T shake-up as Trump piles on

Svea Herbst-Bayliss and Supantha Mukherjee

(Details on size of target company, background)

Sept 9 (Reuters) - Activist investor Elliott Management Corp on Monday unveiled a $3.2 billion stake in AT&T Inc and urged the sprawling U.S. telecommunications and media conglomerate to end its acquisition spree and focus on improving its business.

The move makes AT&T, which has a market capitalization of $270 billion, one of the three largest companies after Apple and Microsoft to be targeted by activist shareholders, who prod management to make changes by selling off units, buying back shares or adding board members. U.S. President Donald Trump, a frequent critic of U.S. cable news channel CNN, which is owned by AT&T, called Elliott's announcement "great news."

The New York-based hedge fund, one of the world's most successful activists, wrote to Dallas-headquartered AT&T on Monday morning, sending a four-part proposal that it said could help lift its stock price by at least 60% by the end of 2021.

The plan ranges from divesting certain businesses, eliminating $5 billion in costs, reviewing how it allocates capital and urging CEO Randall Stephenson, who has led the company since the financial crisis, to stop making acquisitions.

"AT&T has been an outlier in terms of its M&A strategy: Most companies today no longer seek to assemble conglomerates," the letter said.

Elliott also may push for new directors with operating skills and domain expertise to join the company's 13-member board, and it noted that investors have previously raised concerns that Stephenson holds both the CEO and chairman titles.

News of Elliott's stake helped push AT&T's stock price up more than 4% to a high of $37.78, its peak for the year, though by midday on Monday the gain was 2.7%. AT&T said it would engage with Elliott and review the firm's views.

For Elliott, which invests some $38 billion in assets and has been working on the investment for over a year, AT&T marks one of its biggest corporate targets to date.

There are some similarities with last year's campaign against Sempra Energy, when Elliott also highlighted a conglomerate strategy that it said had failed and cost shareholders considerable cash.

But there are differences as well, with some analysts saying that Elliott had learned lessons on how to approach its targets after the Sempra campaign where it asked for six board seats and settled for two that both sides agreed to.

At AT&T, Elliott struck a conciliatory tone at the start of its letter, calling the company one of the world's most important companies before critiquing its strategy, leadership and sluggish share price. It stopped short of asking for a specific number of seats and naming the people who might fill them.

People familiar with the situation suggested negotiations between the hedge fund and company may occur quickly and be resolved relatively soon as other shareholders are also concerned by the company's lack of stock market gains.

CRITICISM OF BIG DEALS

Elliott took aim at AT&T's $85 billion acquisition of media company TimeWarner Inc last year and the $49 billion purchase of satellite television provider DirecTV in 2015.

"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.

The TimeWarner acquisition gave it control of HBO and CNN and took more than two years to close, as it was heavily scrutinized by antitrust authorities and even questioned by Trump.

Elliott did not offer details on any missteps it saw in the deal, but said it remained cautious about the benefits of the combination that also brought the TBS and TNT networks, as well as the Warner Bros film studio, producer of the "Batman" and "Harry Potter" films, under AT&T.

The deal was seen as a turning point for a media industry that has been upended by companies like Netflix Inc and Alphabet Inc's Google, which produce content and sell it online directly to consumers without a cable subscription.

The hedge fund 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 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 pay down debt rapidly through divestment and increase its financial profile. (Reporting by Svea Herbst-Bayliss in New York and Vibhuti Sharma and Supantha Mukherjee in Bengaluru; Editing by Shinjini Ganguli, Patrick Graham, Dan Grebler and Cynthia Osterman)