AT&T Spinning Off Pay-TV Units in $8 Billion Cash Deal

As expected, AT&T Feb. 25 announced a $8 billion cash deal with private equity group TPG to create a new company, dubbed New DirecTV, encompassing satellite TV operator DirecTV, online TV platform AT&T TV and cable service AT&T U-verse.

The telecom giant said it would use the funds to pay down debt accrued in its $85 billion acquisition of Time Warner in 2016, in addition to focusing company interests on WarnerMedia, HBO Max and 5G.

Under terms of the transaction, which is expected to close in the second half of the year, New DirecTV will be jointly governed by a board of directors with two representatives each from AT&T and TPG, as well as a fifth seat for the CEO, which at closing will be Bill Morrow, CEO of AT&T’s U.S. video unit. Following the close of the transaction, AT&T will own 70% of the company and TPG will own 30%.

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AT&T expects to receive $7.8 billion ($7.6 billion in cash and the assumption from AT&T of $200 million of existing DirecTV debt). TPG will contribute $1.8 billion in cash to New DirecTV in exchange for preferred stock units.

“[The deal] supports our deliberate capital allocation commitment to invest in growth areas, sustain the dividend at current levels, focus on debt reduction and restructure or monetize non-core assets,” CEO John Stankey said in a statement.

AT&T has for some time tried selling off its pay-TV units, with little success. The premium TV business is shrinking as consumers gravitate toward over-the-top video services, including online TV. The company reported a loss of 617,000 subscribers in the most-recent fiscal quarter. It ended 2020 with 16.5 million combined DirecTV, AT&T TV and U-verse subs, down from 19.5 million at the end of 2019.

That AT&T TV is included in the deal underscores the telecom’s ongoing challenges in the niche market — as well as offering TPG a stake in an online TV ecosystem led by Disney-owned Hulu+Live TV with more than four million subscribers.

“As video consumption habits evolve, the new DirecTV will continue investing in its offering to provide value to its customers, including through next-generation streaming pay-TV services,” said David Trujillo, partner at TPG.

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