AT&T announced plans to transform its various video businesses – DirecTV, AT&T TV and U-Verse – into a new company that it will jointly control with TPG Capital. The agreement provides for AT&T to maintain a 70 percent stake in the company, with TPG taking the other 30. “The transaction to separate AT & T’s video business in the United States on New DirecTV implies business value for the new company US $ 16.25 billion. ”
AT&T paid a total of $ 67 billion to buy DirecTV: it won over the satellite provider for $ 48.5 billion in 2014, and the rest was debt that AT&T took on. With this “new premium video entity” valued at less than a quarter of that, you can see how badly the original megadquisition fared. “We certainly did not expect this result when we closed the acquisition of DirecTV in 2015,” said AT&T John Stankey in a call with analysts and investors after the news became public.
The deal for this new company, which will be led by AT&T’s US video chief, Bill Morrow, is expected to close in the second half of 2021. AT&T will profit $ 7.8 billion as part of the pact.
AT&T says that all content businesses – including the NFL Sunday Ticket – will be transferred to the “new” DirecTV. The company also insists that its WarnerMedia channels, such as CNN, TBS and TNT, will remain an essential part of the video’s properties. “Customers won’t see a change” in packages or short-term programming, said Stankey.
Activist investors have long urged AT&T to address its DirecTV problem; Elliott Management said the transaction produced “detrimental results”. DirecTV’s business continued to decline in subscribers as consumers switched en masse to streaming entertainment. But AT&T’s deeply confusing brand choices for its video services didn’t help.
“Today’s announcement is in line with the evolution of our business,” Stankey said in the conference call. “We are coming out of a year in which we have seen strong growth in wireless subscribers,” said Stankey, and he also called HBO Max “an important part of our future.” AT&T said it is focused on the mobile business – it spent just $ 23.4 billion on the FCC’s C band spectrum auction – and content efforts like HBO Max.
Stankey added that AT&T examined “all possibilities under the sun” on what to do with its video assets before deciding on the TPG deal.