AT&T reportedly struggling to sell DirecTV at anything but a huge loss

Enlarge / AT&T corporate offices on November 10, 2020 in El Segundo, California.

Getty Images | AaronP/Bauer-Griffin

AT&T is disappointed in the $15 billion offers it has received for DirecTV and has “told prospective bidders it may cancel the auction altogether if it doesn’t get better offers,” the New York Post reported yesterday, citing “sources close to the situation.”

AT&T began seeking a buyer for the struggling satellite division months ago. In October, news reports said that first-round bids valued DirecTV at about $15.75 billion, and AT&T apparently hasn’t been able to get better offers in subsequent auction rounds. On December 9, The Wall Street Journal reported that the latest bids valued DirecTV “at more than $15 billion including debt.” (The actual sale price could be less than $15 billion, as AT&T apparently intends to retain a stake in DirecTV.)

Top bidders included investment firms Churchill Capital and TPG. “Apollo Global Management, long seen by many as the front-runner, submitted a bid valuing the business at less than $15 billion,” the Journal wrote, citing its own anonymous sources. The Journal said the auction is in a late stage and that a sale agreement could be reached in early 2021.

But a deal doesn’t appear certain, as the New York Post’s story yesterday said that “AT&T pushed back a deadline for final bids for DirecTV into January” because of the low offers.

“[I]nsiders tell The Post that AT&T—dissatisfied with those offers—has invited private equity giant TPG Capital to study the books in hopes that it will make a binding offer that props up the price,” the Post article said. The Post described bidders as being “surprised by AT&T’s threat to pack up and go home partly because its DirecTV business continues to shrink amid rising competition with video-streaming platforms like Netflix—and, more recently, AT&T’s own HBO Max service.”

According to earlier reports, deal talks included scenarios such as AT&T retaining a minority stake in DirecTV or even maintaining majority ownership while a buyer assumes control of the pay-TV distribution operations.

Millions of DirecTV users fled AT&T

AT&T has lost nearly 8 million customers since early 2017 from its Premium TV services, which includes DirecTV satellite, U-verse wireline video, and the newer AT&T TV online service. Total customers in that category decreased from over 25 million in early 2017 to 17.1 million at the end of September 2020.

AT&T has driven many of those customers away by repeatedly raising prices and reducing availability of promotional deals and has already announced another round of DirecTV and U-verse TV price increases for January.

It would be a “bitter pill” for AT&T to sell DirecTV for less than a third of the $49 billion it paid for the company in 2015, financial journalist James Brumley wrote in the Motley Fool last week. But AT&T should still take an offer at that level, Brumley wrote:

Bloomberg Intelligence’s John Butler estimated in August that DirecTV would fetch around $20 billion. Any plausible bid is still less than half the $49 billion AT&T paid for the cable provider in 2015, not counting the assumption of DirecTV’s $17 billion worth of debt.

Such a deal would be a bitter pill for AT&T’s management (as well as its shareholders) to swallow, locking in a loss on the deteriorating television platform. Given its lack of options and DirecTV’s woes though, an offer in the $15 billion to $20 billion range plus some of AT&T’s $153 billion debt load would be an acceptable exit of the business. That’s especially true considering AT&T reportedly wants to maintain a majority of DirecTV, and only remove the property from its balance sheet and transfer management of the business to the buyer.

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