AT&T struck a deal with TPG Capital that requires satellite TV provider DirecTV to become an autonomous company in which TPG would hold a 30% stake.
The sides have been in negotiations for months, while AT&T tries to find a solution to the problem of DirecTV’s subscriber losses by dragging down the company’s overall results. The TPG pact implies a corporate value of $ 16.25 billion, a far cry from the $ 48.5 billion that AT&T paid for DirecTV in 2015. AT&T will own the remaining 70% of the new entity.
The agreement covers DirecTV, AT&T TV and AT&T’s smallest U-verse MVPD service. The new company, which will be called DirecTV, will be headed by Bill Morrow, CEO of the AT&T video series in the United States. DirecTV’s new model will be governed by a five-seat board, two for AT&T, two for TPG Capital and one for Morrow.
“This agreement is in line with our investment and operational focus on connectivity and content, and with the strategic businesses that are essential to the growth of our customer relationships in 5G wireless, fiber and HBO Max. And it supports our deliberate commitment to capital allocation to invest in growth areas, sustain the dividend at current levels, focus on debt reduction and restructure or monetize non-core assets, ”said AT&T CEO John Stankey. “As the pay TV industry continues to evolve, forming a new entity with TPG to operate the U.S. video business separately provides the flexibility and dedicated management focus needed to continue to meet the needs of a customer base of high quality and run the business for profitability. TPG is the right partner for this transaction and creating a new entity is the right way to structure and manage the video business to create ideal value. “
DirecTV recorded a net loss of 617,000 subscribers in the fourth quarter, bringing its subscriber base to a total of 16.5 million; ATT. The company has seen a steady decline in subscribers for more than two years, although AT&T has noted that its sequential decline has improved over the past five quarters.
AT&T has some video assets that are not included in the business, including its video operations in Latin America, regional sports networks, U-verse network assets and AT&T’s investment in Sky Mexico. None of WarnerMedia’s assets, including HBO Max, are part of the transaction. AT&T also pledged to absorb $ 2.5 billion in net losses from the “NFL Sunday Ticket” package – the premium channel that allows subscribers to watch any NFL game being played that day. “Sunday Ticket” is known to have been a loss leader for DirecTV.
Altogether, AT&T will receive $ 7.6 billion in cash from the newly created DirecTV entity, and the private equity giant will take on another $ 200 million in existing debt from AT&T. TPG will contribute US $ 1.8 billion in cash in exchange for the venture’s preferred shares. The new DirecTV has $ 6.2 billion in financing commitments, of which $ 5.8 billion will be paid to AT&T in cash.
“We look forward to working with AT&T, Bill and the entire talented team at the new DirecTV to create a perfect customer experience through the separation of the company,” said TPG director John Flynn. “We are particularly excited about the opportunity to expand DirecTV’s new video streaming service, leveraging the company’s leading pay TV platform, talented workforce and large subscriber base to transition to a leading next video provider. generation with the best content in the category and the customer experience. “
Morrow joined AT&T in 2019 with a contract to change the company’s fate. He had previously dealt with similar assignments with Vodafone Australia, Vodafone Europe and Pacific Gas and Electric.
AT&T said it would use the money raised from the sale to pay off debt.
The parties may terminate the deal if it is not completed by November 25, although that term may be extended until May 25, 2022, according to the AT&T Securities and Exchange Commission document.