(Bloomberg) — 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.
As part of the agreement, a joint venture with TPG will run DirecTV and AT&T’s other pay-TV operations, according to a statement 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 the long-struggling 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 — for 5G networks, film and TV programming production, dividends of almost $15 billion a year and interest on nearly $154 billion in long-term debt.
Acquiring DirecTV six years ago for $48 billion allowed AT&T to become the largest pay-TV provider in the U.S. But it also made it 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 its TV business, the company took a $15.5 billion impairment charge last quarter.
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 provides cash to 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 a smaller stake in DirecTV, AT&T can pursue what it calls an inevitable combination with rival satellite-TV provider Dish Network Corp. at some point in the future. A proposed combination of the two satellite services was shot down by the Federal Communications Commission and the U.S. Justice Department in 2002.
AT&T CEO John Stankey has been cleaning house at the sprawling telecom titan, cutting staff and selling underperforming assets. During a January earnings call, Stankey said his priority 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.
(Updates with CEO of new business in seventh paragraph.)
For more articles like this, please visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2021 Bloomberg L.P.
