AT&T proclaims deal to spin off DirecTV into new firm owned by… AT&T

AT&T's logo pictured on a wall at its headquarters.
Enlarge / AT&T’s brand at its company headquarters on March 13, 2020 in Dallas, Texas.

Almost six years after buying DirecTV for $48.5 billion, AT&T at the moment announced a deal to promote a minority stake within the enterprise unit and spin it out into a brand new subsidiary.

AT&T mentioned its take care of personal fairness agency TPG Capital values the TV enterprise at $16.25 billion. A press launch mentioned that AT&T and TPG “will set up a brand new firm named DirecTV that may personal and function AT&T’s US video enterprise unit consisting of the DirecTV, AT&T TV, and U-verse video companies.”

AT&T will personal 70 p.c of the spun-off DirecTV firm’s widespread fairness whereas TPG will personal 30 p.c. DirecTV in its new kind “shall be collectively ruled by a board with two representatives from every of AT&T and TPG, in addition to a fifth seat for the CEO, which at closing shall be Invoice Morrow, CEO of AT&T’s US video unit,” the announcement mentioned.

AT&T acknowledged that its DirecTV buy did not work out as deliberate.

“With our acquisition of DirecTV, we invested roughly $60 billion within the US video enterprise,” AT&T mentioned in supplies distributed to reporters. “It is truthful to say that some points of the transaction haven’t performed out as we had deliberate, akin to pay TV households within the US declining at a sooner tempo throughout the trade than anticipated after we introduced the deal again in 2014. Actually, we took a $15.5 billion impairment on the enterprise in 4Q20.”

Concentrate on 5G, fiber, and HBO Max

Separating DirecTV into a brand new unit will assist AT&T give attention to its key “strategic” areas of 5G cellular service, fiber Web, and HBO Max, AT&T mentioned.

“Because the pay-TV trade continues to evolve, forming a brand new entity with TPG to function the US video enterprise individually supplies the pliability and devoted administration focus wanted to proceed assembly the wants of a high-quality buyer base and managing the enterprise for profitability,” AT&T CEO John Stankey mentioned. “TPG is the proper accomplice for this transaction and creating a brand new entity is the proper method to construction and handle the video enterprise for optimum worth creation.”

The businesses mentioned they count on to shut their transaction within the second half of 2021 and that it “is topic to customary closing situations and to regulatory critiques.” AT&T mentioned it expects to obtain $7.6 billion in money from the partial sale and that it’ll use the cash to scale back its debt.

8 million TV prospects fled AT&T

AT&T has lost over 8 million customers since early 2017 from its Premium TV companies, which embrace DirecTV satellite tv for pc, U-verse wireline video, and the newer AT&T TV on-line service. Complete prospects in that class decreased from over 25 million in early 2017 to 16.5 million on the finish of 2020.

“Since AT&T closed the DirecTV acquisition in 2015, the enterprise has generated money flows of greater than $4 billion per yr, and the corporate expects this to proceed in 2021,” at the moment’s announcement mentioned.

DirecTV’s take care of NFL Sunday Ticket apparently won’t be disrupted, as AT&T mentioned it’s going to proceed to “fund NFL Sunday Ticket for 2021 and 2022 (as much as a $2.5B cumulative cap).”

Present video prospects shouldn’t count on main adjustments, AT&T mentioned.

“Present AT&T video prospects will change into DirecTV prospects at shut and can be capable of maintain their video service and any bundled wi-fi or broadband companies in addition to related reductions,” AT&T mentioned. “AT&T and TPG are dedicated to a clean transition and seamless buyer expertise and can work to additional enhance customer support and produce new options to DirecTV’s video companies.”

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