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WarnerMedia Parent AT&T Sells DirecTV Stake To Private Equity Firm TPG

Jill Goldsmith
·5 min read

UPDATED with details from analysts’ call: WarnerMedia parent AT&T has clinched hotly anticipated deal to sell a significant minority stake in satellite broadcaster DirecTV to private equity group TPG in a deal that will net the telecom giant $7.8 billion.

The deal, expected to close in the second half of 2021, values DirecTV’s video business at $16.25 billion. In a hastily organized call with analysts Thursday, AT&T CEO John Stankey admitted, “We certainly didn’t expect this” in 2015 when the telco giant acquired DirecTV for $48 billion (or $67 billion including debt), testament to the steep secular decline in the business. A few years later, AT&T acquired Time Warner, envisioning a powerful combination of programming and distribution under one roof.

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In the complex deal, the partners will establish a new company, still called DirecTV, that will own and operate AT&T’s U.S. video business unit consisting of DirecTV, AT&T TV and U-verse video services.

Some sort of transaction had been widely anticipated as the company looks to raise cash to pay down debt and has been investing heavily in spectrum on the telecom side and focused on the growth of HBO Max. “It sharpens our focus on the strategic businesses that are important to drive us forward… areas we think we can can grow and add value at a faster clip,” Stankey said.

The FCC revealed yesterday that AT&T bid a hefty $23.41 billion in a spectrum auction for licenses in the upper 3GHz band — that can now be partly offset by the DirecTV proceeds. Moody’s Investors Service warned yesterday that C-Band purchase was was likely to increase leverage and was credit negative. Today, the ratings agency called the DirecTV deal credit positive.

“DirecTV has been a drag on the company’s overall equity valuation, and it is logical that management would sell a part of this declining business,” it said. DirecTV had 17.2 million video subscribers at the end of 2020, down from 20.4 million the year before.

Under the terms of the transaction, the new DirecTV will be jointly governed by a board with two representatives from each of AT&T and TPG, as well as a fifth seat for the CEO, which at closing will be Bill Morrow, CEO of AT&T’s U.S. video
unit. Following the close, AT&T will own 70% of the common equity and TPG will own 30%.

Stankey said that retaining the equity stake, even with the company deconsolidated, or off AT&T’s balance sheet, allows it to participate in any eventual upside (however unlikely). It also creates stability and keeps options open in terms of DirecTV’s relationship with the Turner networks and HBO Max.

The transaction earmarks $2.5 billion for the new standalone DirecTV to cover up losses tied to DirecTV’s NFL Sunday Ticket package.

AT&T is retaining DirecTV’s business is Latin America but Stankey said it’s exploring options for that as well.

AT&T and TPG said they “believe the new structure will provide greater focus, flexibility and resources to best position the business to succeed in the long term and deliver on its commitment to customers, employees and shareholders. The new DirecTV will continue to offer a competitive video service with best-in-class content.”

DirecTV has been leaking subscribers

But the service has been leaking subscribers and AT&T has moved away from traditional pay TV with the 2018 purchase of Time Warner and launch of direct-to-consumer streamer HBO Max.

DirecTV, U-Verse and AT&T TV Now are all based around a linear television model of broadcast and cable networks. DirecTV still bring in lots of cash despite being in secular decline.

The sale is one of the biggest moves yet by John Stankey, who took the reins at AT&T CEO last summer,

AT&T lost nearly 3 million video customers last year. It also recorded a $15.5 billion impairment charge it a re-valuation of its domestic video business.

The telcom giant has been steadily unloading assets to drive down its debt of about $150 billion. In December, it announced a sale of anime streaming service Crunchyroll to Sony’s Funime for $1.18 billion. It also sold its wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands and last year divested its majority stake in Central European Media for $1.1 billion. Execs have said they’re looking at real estate sales. And unconfirmed rumors have bubbled that AT&T might even be willing to sell CNN.

Activist hedge fund Elliott Management took a stake in AT&T several years ago, urging it to focus its business and divest noncore assets.

A merger of DirecTV and smaller rival Dish was initially considered a possibility but would have raised antitrust issues. The FCC rejected a proposed combination of the two satellite broadcasters once before, in 2002.

Other were said to be circling DirecTV as well, including Apollo Global Management and, according to Bloomberg, a blank-check company, or SPAC, backed by former Citigroup exec Michael Klein. (Klein’s vehicle announced a deal this week with electric carmaker Lucid Motors.) Apollo Global Management also had talks about a possible transaction.

AT&T launched AT&T TV in March 2020 to provide DirecTV channels over internet streaming rather than satellite. AT&T TV was designed to replace DirecTV and traditional cable TV. It features live TV channels — including ABC and Fox, plus cable channels such as ESPN, TNT, Nickelodeon and HGTV — that are streamed over the internet.

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