People pass an AT&T store in New York.
Kena Betancur | AFP | Getty images
AT&T struck a deal with private equity firm TPG to split up its DirecTV, AT&T TV and U-Verse businesses, according to a SEC filing on Thursday.
Under the agreement, AT&T and TPG will form a new entity called DirecTV, which will own and operate the company’s video services, DirecTV, AT&T TV and U-verse. Bill Morrow, CEO of AT&T’s US video unit, was named CEO of the new company.
The transaction implies an enterprise value for the new company of US $ 16.25 billion, according to the company. AT&T acquired DirecTV for $ 48.5 billion ($ 67 billion in debt) in 2015 and hoped to unite the national pay-TV company with its wireless service to offer customers a discounted package. Digital video distribution has supplanted satellite in recent years, causing DirecTV’s value to plummet and AT&T to reposition its strategy around HBO Max, its main video streaming service.
“We certainly did not expect this result when we closed the acquisition of DirecTV in 2015,” AT&T CEO John Stankey said in a conference call on Thursday, while noting that the deal is in the best interest of AT&T shareholders.
After the closing of the transaction, AT&T will hold 70% of the ordinary capital and TPG 30%. The new company will be jointly governed by a board with two representatives from each of AT&T and TPG, as well as Morrow, the company said. AT&T will no longer consolidate the new video business on its balance sheet.
The two companies are expected to announce a deal later this week, CNBC reported on Tuesday. AT&T shares rose more than 1% in after-hours trading.
Focus on AT&T
Hedge fund Elliott Management took an activist stake in AT&T in September 2019. In a letter to management, Elliott asked AT&T to focus its strategic operations while considering divesting non-core assets – including DirecTV.
DirecTV, U-Verse and AT&T TV Now are based on a broadcast and cable linear TV business that is losing millions of subscribers each year. AT&T has decided to focus on its connectivity and streaming assets, the company said in a statement.
TPG is not buying a stake in DirecTV América Latina or in the regional sports networks that AT&T acquired in its 2015 agreement with DirecTV.
Stankey did not rule out another transaction for the video business after the TPG deal was closed. DirecTV and rival Dish Network have long flirted with the merger – including attempting a deal in 2002 that was blocked by regulators.
Both DirecTV and Dish are losing millions of satellite TV customers each year, as consumers switch to streaming options. It is possible that regulators will accept a future merger if satellite TV continues to fall and other video options gain popularity.
“We will be diligent in exploring second options,” said Stankey.
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