AT&T signs deal for DirecTV with private equity firm TPG; WarnerMedia Parent to Keep 70%, $ 7.8 Billion Net in Cash – Deadline

UPDATE with the details of the analysts call: WarnerMedia’s parent company AT&T has reached a much-anticipated deal to sell a significant minority stake in satellite broadcaster DirecTV to private equity group TPG in a deal that will bring the telecommunications giant $ 7.8 billion. dollars.

The deal, which is 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 weren’t expecting this” in 2015 when the telecommunications giant acquired DirecTV for 48. billion dollars (or 67 billion dollars, including debt), reflecting the sharp secular decline in 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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As part of the complex agreement, the partners will create a new company, still referred to as DirecTV, which will own and operate AT & T’s US video business unit, comprised of video services DirecTV, AT&T TV and U-verse.

Some sort of deal had been widely anticipated as the company seeks to raise cash to repay its debt and has invested heavily in spectrum on the telecom side and focused on growing HBO Max. “It strengthens our focus on the strategic activities that are important to moving us forward,” Stankey said.

The FCC revealed yesterday that AT&T had offered $ 23.41 billion in a spectrum auction for licenses in the upper 3GHz band – which can now be partially offset by the proceeds from DirecTV. Moody’s Investors Service warned yesterday that the purchase of C-Band was likely to increase leverage and that credit was negative. Today, the rating agency called the credit on the DirecTV deal positive.

“DirecTV has been a drag on the overall valuation of the company’s shares, and it makes sense for management to sell some of this declining business,” he said. DirecTV had 17.2 million subscribers.

Under the terms of the transaction, the new DirecTV will be jointly led by a board of directors consisting of two representatives from AT&T and TPG, as well as a fifth seat for the CEO, who at closing will be Bill Morrow. , CEO of AT&T American Video.
unit. After closing, AT&T will own 70% of the common shares and TPG 30%.

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

The deal spends $ 2.5 billion on the new stand-alone DirecTV to cover losses related to DirecTV’s NFL Sunday Ticket package.

AT&T will keep DirecTV’s business in Latin America, but Stankey said it is also exploring options for it.

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

DirecTV disclosed subscribers

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

DirecTV, U-Verse, and AT&T TV Now are all based on a linear television model of broadcast and cable networks. DirecTV is still making a lot of money despite its secular decline.

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

AT&T lost nearly 3 million video customers last year. It also recorded an impairment charge of $ 15.5 billion in a reassessment of its domestic video business.

The telecommunications giant has regularly offloaded assets to reduce its debt by around $ 150 billion. In December, it announced the sale of the Crunchyroll anime streaming service to Sony’s Funime for $ 1.18 billion. It also sold its wireless and wireline businesses in Puerto Rico and the U.S. Virgin Islands, and last year sold its majority stake in Central European Media for $ 1.1 billion. Executives said they were considering real estate sales. And unconfirmed rumors have circulated that AT&T may 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 its non-core assets.

A merger of DirecTV and the smaller rival Dish was initially seen as a possibility, but would have raised antitrust issues. The FCC once rejected a proposal to combine the two satellite broadcasters in 2002.

Others have also reportedly surrounded DirecTV, including Apollo Global Management and, according to Bloomberg, a blank check company, or SPAC, backed by former Citigroup executive Michael Klein. (Klein’s vehicle announced a deal this week with electric car maker Lucid Motors.) Apollo Global Management also discussed a possible transaction.

AT&T launches AT&T TV in March 2020 to deliver DirecTV streaming Internet channels rather than satellite. AT&T TV was designed to replace DirecTV and traditional cable television. It comprises live tv channels – including ABC and Fox, as well as cable channels such as ESPN, TNT, Nickelodeon and HGTV – which are broadcast over the internet.

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