Sources told Charlie Gasparino of FOX Business that Apollo’s offer of about $ 12 billion is unlikely to include a partnership with DISH Network.
AT&T Inc. agreed to sell a stake in its pay-TV unit to private equity firm TPG and split the struggling business, removing the telecommunications giant from an expensive bet on entertainment.
The transaction would move the services of DirecTV and AT&T TV in the United States to a new entity that will be jointly managed by the new partners. AT&T will maintain a 70% stake in the business. TPG will pay $ 1.8 billion in cash for a 30% stake.
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The deal values the new company at $ 16.25 billion, with about $ 6.4 billion in debt. This is well below the $ 49 billion – about $ 66 billion including debt – that the Dallas company paid to buy international satellite operator DirecTV in 2015. AT&T recently downed $ 15.5 billion in unit value , reflecting the service’s weaker prospects.
AT&T said it would get about $ 7.8 billion in cash from the transaction to help pay off debts. These funds include $ 5.8 billion that the new company will borrow from banks and pay AT&T.
AT&T may stop including the results of its video operations in the United States in its consolidated financial reports. The telecommunications company also agreed to cover losses of up to $ 2.5 billion linked to DirecTV’s NFL Sunday Ticket package.
Bidders including TPG and its rival Apollo Global Management Inc. have been vying for the deal since The Wall Street Journal first reported on the sale process in August.
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AT&T bought DirecTV near the peak of the pay TV market, before the cable cut brought the industry down. Netflix Inc. had about 75 million subscribers worldwide, far below the more than 200 million subscribers it serves today. Cheap channel packages, which cost $ 30 a month or less, have not yet entered the market.
“The breakdown in pay TV has exceeded our original expectations,” said AT&T chief financial officer John Stephens in an interview, adding that the satellite TV business helped generate money for the company, even as the customer base declined. . Stephens said the new ownership structure is “a very attractive transaction, obtaining the experience of TPG and the payment in cash”.
| Ticker | Safety | Last | Change | Change % |
|---|---|---|---|---|
| T | AT&T INC. | 28.64 | -0.77 | -2.62% |
AT&T said the new venture, to be called DirecTV and based in El Segundo, Calif., Is expected to retain substantially all AT&T employees currently working at the unit and that customer service will not be affected. The unit had about $ 28 billion in revenue last year and 17.2 million customers.
The new deal will be run by AT&T executive Bill Morrow, who spent much of last year leading a project to cut the telecommunications company’s overhead. The new DirecTV will have five directors, two from each owner, in addition to Mr. Morrow.
TPG has experience in investments in pay TV. In November, she said she would sell Astound Broadband, an operator of cable brands including RCN, for $ 8.1 billion, including debt. His investments in media and entertainment include Spotify Technology SA, talent agency CAA and payroll services company Entertainment Partners.
The procurement firm also has a history of separating assets from large corporations and partnering with their owners to improve them. In 2016, TPG purchased a 51% stake in Intel Corp.’s cybersecurity software provider McAfee LLC. and in 2018 acquired a stake in Allogene Therapeutics Inc., then a unit of the pharmaceutical company Pfizer Inc.
TPG’s investment in DirecTV will come in the form of senior preferred shares with a 10% cash coupon.
AT&T bought DirecTV more than five years ago and merged the business with its smaller cable TV service, making the cell phone operator the largest pay-TV provider in the country overnight. It also overwhelmed the company with a mountain of debt that rose after the purchase of entertainment producer Time Warner Inc. in 2018.
The two megadeals allowed AT&T to rival cable giant Comcast Corp. and its NBCUniversal division. But the deal came close to the height of a “cable cut” trend that has prompted millions of Americans to cancel their cable and satellite TV services.
AT&T has lost 7 million domestic pay-TV subscribers in the past two years. Comcast lost about 2 million of those customers in the same period. Dish Network Corp., DirecTV’s rival on satellite TV, lost about 1 million subscribers.
The meltdown of the satellite business and the accumulated debt to acquire it have weighed on AT&T’s shares in recent years. Activist hedge fund Elliott Management challenged the company to abandon unnecessary business units and buy back shares, among other recommendations. The company launched a formal sales process for the video unit after longtime AT&T executive John Stankey became chief executive in June.
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The transfer of part of the pay-TV unit’s debt helps AT&T reduce its obligations, which may increase in the coming months, after the operator agrees to spend $ 23.4 billion on wireless spectrum licenses. The net debt load, which was above $ 180 billion after the transaction with Time Warner, recently stood at around $ 148 billion.
Moody’s Investor Service on Wednesday told customers that the spectrum hype could put pressure on AT&T’s credit rating, which is two notches above the rubbish territory. In a brief note on Thursday, Moody’s called DirecTV’s business “moderately credit-friendly” because it would generate money to help cover spectrum costs.
AT&T’s entertainment strategy is now based on the success of HBO Max, a streaming service created based on the premium cable channel brand. The service launched in May 2020, entering a field crowded with similar services from Netflix Inc., Amazon.com Inc. and Walt Disney Co., among others.
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HBO Max initially struggled to move its existing customer base away from subscriptions provided through partnerships with cable TV providers and device manufacturers. Growth improved near the end of 2020, after executives struck deals with companies like Amazon and Roku Inc.
The service also gained a flood of subscriptions by showing new movie releases online from its sister studio Warner Bros. the same day they hit theaters. Stankey said the move, which brought down a Hollywood model that had been in place for decades, was a temporary response to the box office drop caused by the coronavirus pandemic. HBO Max counted 17 million accounts activated at the end of December