August 2, 2021
AT&T’s pending launch of standalone “DirecTV Stream” as the new brand name for its declining satellite pay-TV businesses (i.e. DirecTV, AT&T TV, and U-verse) marks the telecom’s latest makeover in a disastrous M&A legacy.
Marketing the platform with 15.9 million combined subs as a gateway (i.e. Roku and Fire TV) to third-party subscription streaming platforms such as Netflix, Amazon Prime Video, Hulu and even HBO Max is neither original or transformative. It’s still essentially a pay-TV business that lost 473,000 subs in the most recent fiscal period — 2.3 million subs over the past year.
DirecTV Stream is a short-term fiscal generator.
AT&T, the most highly-indebted company in the U.S., in February sold a 30% stake in DirecTV to private equity group TPG for $1.8 billion, valuing the El Segundo, Calif.-based operator at $16.25 billion — just six years after acquiring the company for $50 billion ($66 billion including debt).
DirecTV Stream, under the leadership of new CEO Bill Morrow, will be spun off with $6.2 billion in debt as AT&T continues to chip away at a debt load that topped more than $180 billion following the $85 billion Time Warner acquisition.
“Regardless of the stated value of the deal, we believe it should suffice to say that AT&T is getting $7.6 billion of cash up front … [and] keeping 70% of the common equity,” Phil Cusick, analyst with J.P. Morgan, wrote earlier this year in a note.
As the saying goes, “a bird in the hand is better than two in the bush.”
Maybe, but AT&T still has $150 billion in debt at a time when it is spending billions on 5G rollout. The telecom’s other spin-off of a minority fiscal stake but majority operational control in WarnerMedia to Discovery CEO David Zaslav for $43 billion, underscored the telecom’s failed attempt to vertically integrate content with distribution.
“The truth is, AT&T made a boneheaded decision and now they’re paying for it, but in corporate America, no one really pays for it, no one’s even allowed to say it, no one’s allowed to admit it,” Jim Cramer, the outspoken “Mad Money” host, said recently on his CNBC program.
The TV analyst said it could have understood companies like Apple, Alphabet (Google) or Facebook pulling the trigger on such an enormous acquisition.
“They’d never do something as stupid, but at least they’re sitting on mountains of cash,” Cramer said.