AT&T will receive $ 7.8 billion in the deal, which it will use to pay off its growing debt load.
Telecom giant AT&T led by CEO John Stankey has signed a deal to sell a minority stake in its satellite TV unit DirecTV, AT&T TV, and its U-Verse business to private equity firm TPG. The companies will create a new venture, called DirecTV, which will own and operate pay video services.
The deal values the unit at $ 16.25 billion. AT&T will own 70 percent and TPG will own 30 percent of the new DIRECTV, which will include all three of the above businesses.
AT&T will receive $ 7.8 billion from the new venture after the spinoff is completed, including the assumption of $ 200 million in debt. In 2014 AT&T agreed to acquire DirecTV for $ 48.5 billion, or more than $ 67 billion, including debt, and in 2015 closed the deal.
AT&T CEO John Stanke said on Thursday to discuss the deal, “We certainly did not expect this result when we closed the acquisition of DirecTV in 2015.” AT&T is understood to have focused on divesting its stake for private equity groups to avoid regulatory concerns.
By holding a majority stake, DirecTV can still leverage its distribution reach. Making the announcement, AT&T stated that the new DirecTV would have a commercial agreement with AT&T to continue offering bundled pay-TV service to AT & T’s wireless and Internet customers.
Additionally, there will be commercial agreements between AT&T and New DirecTV that will replace. New DirecTV video subscribers continue to have access to HBO Max. ”
John Flynn, ahead of TPG, said in a statement that the new DirecTV intends to leverage its existing video business and develop its streaming TV bundle business. The companies are expected to close the deal in the second half of 2021, with all employees in AT & T’s video business moving to new ventures.
AT&T, at times under pressure from activist shareholders, had previously considered a DirecTV spinoff or merger with rival Dish Network, with observers traditionally saying such a combination could run into antitrust concerns. Dish president Charlie Ergen recently stated, however, that a combination of satellite giants could lead to “inevitable” increased competition.
On-call on Thursday, Stanke indicated that the new company would consider a dish merger, adding that the telecom giants and TPG would be diligent about exploring other options “after the deal closes”.
AT&T is looking at the sale of additional non-core assets to reduce its debt to $ 147.5 billion at the end of 2020. In fact, the company said on Thursday that it would use the cash from the sale only to meet its debt burden, to spend more than $ 23 billion in new 5G spectrum at the company’s latest FCC auction. committed to.
“As the DirecTV valuation is low, the transaction is only positively positive for AT&T as we expect it to provide AT&T with an income of approximately $ 7.8 billion, which we expect the company’s C-. The band’s auction cost will help offset the liability. ” As a result, AT & T’s profit reduction should be reduced, ”Moody’s analyst Neil Begley wrote in a note on Thursday.
“This agreement focuses on our investment and operations and connectivity and aligns with strategic businesses, which are critical to increasing our customer relationships across 5G wireless, fiber, and HBO Max.
And it supports our intentional capital allocation commitment to investing in growth sectors, focus on maintaining dividends, debt reduction and restructuring at current levels and monetize non-core assets, “A.T. John Stankey, CEO of & T, announced the deal.
Stanke said: “As the pay-TV industry continues to evolve, a new unit with TPG is being formed to operate UPG.
The video business separately provides the flexibility and dedicated management attention required to meet the needs of a high-quality customer base and manage the business for profitability. TPG is the right partner for this transaction and the creation of a new entity is the right way to structure and manage the video business for optimal value creation. ”
AT&T closed $ 1.1 in October. Sale of its majority stake in Central European Media Enterprises, which operates networks in Bulgaria, Croatia, Czech Republic, Romania, Slovak Republic, and Slovenia. AT&T signed a December deal to sell the anime outfit Crunchyroll to Sony. It is believed to have abandoned the earlier possible sale of Warner Bros., WarnerMedia’s video gaming unit.
Interactive Entertainment, which owns and develops games based on the franchising Fighting franchise as well as intellectual property owned by Hollywood veterans.
AT&T CFO John Stephens indicated in September that the telecommunications giant would not sell advertising technology unit, Xander, stating, “Advertising is an important part of our business … and that’s not going to change”, Including making ads more efficient for data customers and AT&T.
Wall Street analysts are divided about a possible DirecTV deal. Bernstein analyst Peter Supino argued in a report that a sale of the business would “improve AT & T’s growth while lowering its dividend payout ratio.”
However, MoffettNathanson analyst Craig Moffett said in a declining report: “Certainly, no one can argue that AT&T wouldn’t be better off without D&cTV Albatross. But we are skeptical about the viability of any deal… and we still are. “But he called the agreement on the price tag a significant challenge.
“The problem is evaluation,” he wrote. “DirecTV’s subscriber base is declining year-on-year at an astonishing 18 percent. And earnings before interest, taxes, depreciation, and amortization (EBITDA) are, likewise, falling into the high teens by the last quarter.
… Even with Dish merged, the pro-former subscriber losses for the two combined would be running at a rate of 15 percent per year. “The analyst concluded that” all of this makes it impossible for the business to shrink, which quickly shrinks, “while an exit through investment. An IPO or sale to someone else down the road cannot be ensured.
“The only way for the potential buyer to meet a reasonable return constraint in that scenario would be to get in a very low entry multiple,” Moffett concluded. “This leaves a small needle for AT & T’s thread.”
Activist investor Elliott Management criticized AT&T management in 2019 for the timing of its DirecTV acquisition. The pay-TV ecosystem has come under tremendous pressure since this deal. “In fact, the rapid decline as the industry continues to trend with AT & T’s premium TV customers, especially satellites, struggles mightily.
Unfortunately, it has become clear that AT&T has introduced linear TVs. Has acquired DirecTV at the absolute pinnacle of the market. “