Southeastern Asset Management Goes Activist On Centurylink Inc (CTL)

Southeastern Asset Management isn’t happy about how things are going at Centurylink Inc (CTL) and wants to make some changes. Here is what they said in a recent 13D filing:

“In this situation Southeastern is switching from a filing on Schedule 13G to 13D as we have more direct conversations with the Company about adding directors to the board. Southeastern believes that the dividend cut was not the best way to address balance sheet concerns, so will seek to add directors who not only bring fiber and network expertise but who also have deep financial expertise.

Southeastern believes that the Company’s fiber assets are extremely undervalued in the stock market, especially considering the metrics which entities such as infrastructure funds and cable companies have paid in recent private transactions for fiber assets. Therefore Southeastern intends to talk to such infrastructure funds, to cable companies, and to any other verticals who are heavy users of fiber networks but may want to own such networks or parts of them.

Mason Hawkins, Southeastern Asset Management

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In light of such private market interest, we believe the preferred way to improve the balance sheet should be through asset sales. Southeastern seeks to add directors who will bring expertise to such discussions. If asset sales are more likely in the intermediate term than the short-term, then Southeastern believes that separate target stocks should be considered for the fiber network business and for the Consumer business. Such target stocks, or tracking stocks, would highlight the value in the two disparate parts of CenturyLink, would provide a path towards eventual actual separation of these segments, and would add capital allocation flexibility for the Company.

Southeastern is very supportive of Jeff Storey and his team operationally, and only seeks to affect and improve the Company’s capital allocation decision making.

We may from time to time and at any time in the future, depending on various factors, take such actions with respect to our investment in the Securities as we deem appropriate at the time including, but are not limited to: (i) acquiring additional Securities and/or other equity, debt, notes, other securities, including but not limited to derivative or other instruments that are based upon or relate to the value of the Securities in the open market, through private transactions or otherwise; (ii) disposing of any or all of the Securities in the open market, through private transactions or otherwise; (iii) entering into agreements or understandings with other shareholders or stakeholders of CenturyLink with respect to the voting, holding and/or disposition of Securities; or (iv) proposing or considering any one or more of the actions described in subsections (a) through (j) of Item 4 of Schedule 13D. To obtain the flexibility to discuss various alternatives, including any of the actions or transactions enumerated in clauses a through j of Item 4 of Schedule 13D, with the Issuer’s management or with third parties, Southeastern is converting its ownership filing on Schedule 13G to a filing on Schedule 13D.”

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Here is what the company said in response:

CenturyLink, Inc. always welcomes constructive input from its shareholders. While we disagree with Southeastern’s criticism of our recently announced capital allocation policy, we are engaged in discussions with Southeastern regarding their suggested director nominees. While any potential director needs to be vetted through the Board’s formal review process, it is our expectation that Southeastern will nominate a high caliber candidate whom we will ultimately be able to nominate to the CenturyLink Board of Directors. Of note, CenturyLink’s Board of Directors is composed of 13 highly-qualified directors, 10 of whom are independent and five of whom have joined in the last two years.

While the Board is always open to evaluating suggestions for improved capital allocation and value creation, it is important to note that the Board unanimously supports our strategic plan to accelerate our delivering of the Company’s leverage ratio to a range of 2.75x to 3.25x in approximately three years, while continuing to fund our growth and transformation initiatives and returning more than $1 billion of dividends annually to shareholders. The Board adopted this policy after extensive deliberation, including receiving advice from two independent financial advisors.

The Board believes that the Company’s steps to further strengthen its balance sheet, reduce interest rate risk, lower the Company’s cost of capital, and increase the Company’s financial flexibility to pursue attractive growth initiatives over time will create significant value for our shareholders. The benefits of the Board’s policy have already begun to be realized; in response to the Company’s announcement, Standard & Poor’s removed its negative outlook from CenturyLink’s credit rating.

CenturyLink continually takes a broad-minded review of its asset portfolio to assess the best ways to enhance value for all shareholders. As the sale of our data center business a few years ago demonstrated, the Company is willing to modify its portfolio when it believes doing so would increase the long-term value of our business. Our CEO Jeff Storey also indicated on our most recent earnings call that the Board is always evaluating other ways to maximize shareholder value, in all of our assets, such as our consumer business.

Disclosure: None. This article is originally published at Insider Monkey.