Almost six years after buying DirecTV for $48.5 billion, AT&T today declare an agreement to sell a small stake in the business unit and turn it into a new subsidiary.
AT&T said its deal with private equity firm TPG Capital values the TV business at $16.25 billion. A press release said that AT&T and TPG “will form a new company called DirecTV that will own and operate AT&T’s US video business unit consisting of DirecTV, AT&T TV, and U-foot video services.”
AT&T will own 70 percent of DirecTV’s remaining equity while TPG will own 30 percent. DirecTV in its new form “will be jointly governed by a board with two representatives from each of AT&T and TPG, and a fifth seat for the CEO, which will be Bill Morrow, CEO of the AT&T US video group, the announcement said.
AT&T acknowledges that your DirecTV purchase is not working as intended.
“With our acquisition of DirecTV, we are investing approximately $60 billion in the U.S. video business,” AT&T said in materials distributed to reporters. “It’s fair to say that some aspects of the deal didn’t pan out as planned, such as pay-TV homes in the US declining at a faster rate across the industry than anticipated when the deal was announced back in 2014. In fact, we took a $15.5 billion deficit on business in 4Q20.”
Focus on 5G, cable, and HBO Max
Splitting DirecTV into a new unit will help AT&T focus on its key “strategies” of 5G mobile service, cable Internet, and HBO Max, AT&T said.
“As the pay-TV industry continues to evolve, creating a new entity with TPG to operate the US video business separately provides the flexibility and dedicated management focus needed to continue meeting the needs of our high-potential customer base and manage the business. for profit. AT&T CEO John Stankey said. “TPG is the right partner for this business and creating something new in the right way to organize and manage video business for better value creation.”
The companies said they expect to close their transaction in the second half of 2021 and that it is “subject to customary closing conditions and to regulatory reviews.” AT&T said it expects to receive $7.6 billion in cash from the part sale and will use the money to reduce its debt.
8 million TV customers fled AT&T
AT&T has lost 8 million customers since the start of 2017 from its Premium TV services, which include DirecTV satellite, cable video, and the new AT&T TV online service. Total customers in that category decreased from over 25 million in early 2017 from 16.5 million at the end of 2020.
“Since AT&T closed its acquisition of DirecTV in 2015, the business has generated cash flows of more than $4 billion per year, and the company expects this to continue in 2021,” today’s announcement said .
DirecTV’s deal with NFL Sunday Ticket apparently won’t be interrupted, as AT&T says it will continue to “pay NFL Sunday Ticket for 2021 and 2022 (up to a $2.5B revenue cap).”
Current video customers shouldn’t expect big changes, AT&T said.
“Existing AT&T Video customers will become DirecTV customers immediately and will be able to keep their video service and any wireless or broadband services as well as associated discounts,” AT&T said. “AT&T and TPG are committed to a positive change and seamless experience and will work to further improve customer service and bring new features to DirecTV video services.”