For TPG, the deal with AT&T allows the firm to acquire a 30 percent stake in the video business for just $ 1.8 billion in cash. In the summer of 2015, telecom giant AT&T closed its acquisition of satellite powerhouse DirecTV, which took its new role as the “largest pay-TV provider” in the world. Price tag: $ 67 billion, including debt. AT&T raised 25.4 million U.S. dollars that year. Finished with Pay-TV subscribers.
Fast-forward to February 25, when AT&T sold a 30 percent stake in DirecTV and its other video services, U-Word and AT&T TV, to private equity firm TPG Capital. The deal is known as the new entity, known as DirecTV, for $ 16.25 billion, “significantly below,” noted Neil Begley as Moody’s analyst – 76 percent to be exact. AT&T ended in 2020 with 17.2 million American video subscribers, a third lower than in 2015.
“AT&T’s DirecTV is one of the worst acquisitions of all time,” MoffettNathanson analyst Craig Moffett wrote after unveiling the deal. “Most rated the deal as ‘real’ at close to $ 12 billion.” Driving factors: the rise of cord-cutting and streaming. Wells Fargo analyst Steven Köhl says, “Anemic valuation shows how serious things have become in the pay-TV ecosystem.”
Even AT&T CEO John Stankey, who was tapped to oversee DirecTV in 2015, had to admit on February 25: “We certainly didn’t expect this result.” For TPG, whose media investments also include CAA and Spotify, the complex deal allows the firm to acquire a 30 percent stake in the video business for just $ 1.8 billion in cash. It is betting on buying at a lower price and leveraging its experience to place bets in businesses and improve their performance with existing owners.
TPG partner David Trujillo said: “TPG intends to partner with AT&T and the new DirecTV leadership to bring true focus, focus, and execution in support of the new DirecTV’s position as a competitive video provider.” Begley, a debt analyst, expects AT&T to use the money from the sale to “help offset” more than the $ 23 billion it recently agreed to spend on the 5G wireless spectrum.
But stock analysts limited the immediate financial impact of the transaction and their outlook on shares of AT&T unchanged. “What they have actually done is the right to shut down DirecTV in the basement in the hope that no one remembers it below,” Moffett argued. Some hope that although another deal will follow the moving line, as noted by Cowen analyst Colby Synthel: “We note that a potential merger with Dish is the most likely opportunity.”
Peter Supino of Bernstein said that AT&T said the potential synergy of a merger with Dish is too much exposure. But Moffett noted that there remain mistrust concerns about such a deal: “Ultimately, they will not be allowed to merge, but until that happens, the combined valuations are still lower than DirecTV’s standalone valuation It is possible.” Some wonder if AT&T can also decide on another major acquisition, an $ 85 billion 2018 purchase of WarnerMedia.
Many analysts have suggested Comcast’s NBCUniversal as the deal partner. Supino said: “Without a major deleveraging transaction (for WarnerMedia NBCU?), We look at AT&T … introducing AT & T as a very slow-moving route to AT & T for its connectivity and media The ability to invest in businesses as well as the ability of stocks to appreciate capital should be hindered. ”