AT&T to Spin Off Long-Suffering DirecTV in Deal With TPG

AT&T Inc. will offload its DirecTV operations in a deal with private equity firm TPG that values the business at about $16 billion, a fraction of what the telecom giant paid for the satellite-TV company in 2015.

The move caps years of AT&T deliberating over what to do with DirecTV, a pay-television pioneer that had increasingly become a burden as it hemorrhaged customers.

As part of the agreement, a joint venture with TPG will run DirecTV and AT&T’s other pay-TV operations, the companies said Thursday. AT&T will get $7.6 billion in cash from the transaction, with the new DirecTV taking on $5.8 billion in committed debt financing.

TPG is acquiring a 30% stake in the business, leaving AT&T with 70% of the new entity. A key benefit for the phone company will be the removal of DirecTV from its books, though the transaction doesn’t include Latin America operations.

With the sale, AT&T is taking a big step toward becoming a smaller, modern communications and media company. It also helps the carrier balance competing cash demands. AT&T is funneling money into its 5G network, film and TV programming production and dividends of almost $15 billion a year, as well as paying interest on nearly $154 billion in long-term debt.

Acquiring DirecTV six years ago for $48 billion made AT&T the largest pay-TV provider in the U.S. But it also became the biggest victim of cord cutting that swept the industry, with customers jettisoning pay-TV packages in favor of streaming services.

Since buying DirecTV, AT&T has lost almost 9 million TV subscribers -- or more than a third of the 25.4 million customers it had six years ago. To account for the lower value of the business, the company took a $15.5 billion impairment charge last quarter.

The DirecTV venture will control the NFL Sunday Ticket contract, which lets customers see games that aren’t available on local channels. AT&T is on the hook to pay as much as $2.5 billion to the new company for losses during the remaining two years of that deal.

The board of the new DirecTV will have two representatives apiece from AT&T and TPG, as well as a fifth seat for the chief executive officer. Bill Morrow, currently CEO of AT&T’s U.S. video unit, is expected to take that role when the transaction is completed.

The deal will help pay for AT&T’s 5G wireless expansion, including the billions of dollars worth of airwaves the company is expected to buy at a federal auction.

With the TV operations in a separate venture, AT&T and TPG can pursue M&A options that weren’t necessarily available previously. The biggest and most widely proposed match would be rival satellite-TV provider Dish Network Corp.

Executives from both Dish and AT&T have acknowledge the logic of a deal like that. A proposed combination of the two satellite services was shot down by the Federal Communications Commission and the U.S. Justice Department in 2002.

Future Deals?

AT&T CEO John Stankey was asked on an investor call if he saw an opportunity for the venture to combine with another video distributor. He said he’s considered a couple avenues to position the assets differently down the road to create more value.

“First, we want to get the leadership team in place and executing well,” he said. “And then from there we can explore what those second options might be.”

Stankey has been cleaning house at the sprawling telecom titan, cutting staff and selling underperforming assets. He said on the call that he is still open to a possible sale of AT&T’s Latin America DirecTV business.

AT&T’s Priority

His priority, he said during a January earnings call, is to increase subscribers to HBO Max, the company’s $15-a-month streaming service, as well as add lucrative wireless customers. For the third part of his three-pronged plan, Stankey said AT&T would connect 2 million more homes to fiber-optic cable by year-end.

As part of its belt-tightening efforts, AT&T agreed in December to sell its anime video unit Crunchyroll to Sony Corp.’s Funimation Global Group for $1.18 billion.

“This agreement aligns with our investment and operational focus on connectivity and content, and the strategic businesses that are key to growing our customer relationships across 5G wireless, fiber and HBO Max,” Stankey said on Thursday.

©2021 Bloomberg L.P.

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