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

Enlarge / AT&T’s emblem at its company headquarters on March 13, 2020 in Dallas, Texas.

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

AT&T mentioned its cope with non-public 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 can 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 frequent fairness whereas TPG will personal 30 p.c. DirecTV in its new type “will likely 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 will likely 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 elements of the transaction haven’t performed out as we had deliberate, similar to pay TV households within the US declining at a sooner tempo throughout the business than anticipated once we introduced the deal again in 2014. In actual fact, 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 concentrate on its key “strategic” areas of 5G cell service, fiber Web, and HBO Max, AT&T mentioned.

“Because the pay-TV business continues to evolve, forming a brand new entity with TPG to function the US video enterprise individually offers the flexibleness 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 fitting companion for this transaction and creating a brand new entity is the fitting strategy to construction and handle the video enterprise for optimum worth creation.”

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

8 million TV clients fled AT&T

AT&T has misplaced over 8 million clients since early 2017 from its Premium TV companies, which embody DirecTV satellite tv for pc, U-verse wireline video, and the newer AT&T TV on-line service. Complete clients 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 12 months, and the corporate expects this to proceed in 2021,” at present’s announcement mentioned.

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

Present video clients mustn’t anticipate main modifications, AT&T mentioned.

“Current AT&T video clients will grow to be DirecTV clients at shut and can be capable to preserve 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 convey new options to DirecTV’s video companies.”

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