AT&T Ups Effort to Sell DirecTV, Xandr and Crunchyroll

After years of acquisitions, AT&T is on a sales mode. The telecom’s on-again, off-again love affair with satellite pay-TV distribution appears to be off again. The company has reportedly hired a major investment banker to help unload DirecTV, which it acquired in 2015 for $48.5 billion just as online TV and subscription streaming video-on-demand was flourishing.

AT&T is also looking to offload anime-based streaming service/publisher Crunchyroll and Xandr, the online advertising unit launched just two years (following the $1.8 billion acquisition of AppNexus), but has struggled to gain traction due to a variety of issues in the rapidly changing digital ecosystem.

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With nearly $180 billion in debt following the $85 billion purchase of Time Warner (now WarnerMedia), AT&T has been looking to cut non-core assets. The debt is now down to $152 billion, and despite repeated denials from senior executives over the years, DirecTV appears to be on sales block.

The Wall Street Journal reports AT&T is working with Goldman Sachs to find a buyer willing to pay around $20 billion for 50% stake in the El Segundo, Calif.-based pay-TV operator. The sale is challenged by ongoing secular changes in home entertainment underscored by the loss of 7 million combined DirecTV/AT&T U-verse video subs in the past year.

As subscription streaming video-on-demand services such as Netflix, Amazon Prime Video and Hulu proliferate, AT&T has attempted to straddle traditional linear TV distribution with over-the-top video. The company has now moved much of its content distribution future into HBO Max, the $15 monthly SVOD platform, which plans to offer an ad-supported tier in 2021.

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“To the extent that we’re able to get those [pay-TV] customers engaged with us on those [streaming] platforms, then we’re in a good place, and we’re OK with that,” CEO John Stankey told CNBC in July. “And if that takes us down a path that says satellite delivery is less important, so be it.”

A possible merger with rival Dish Network is a favorite proposition for Dish founder/CEO Charlie Ergen, but some observers say the idea would trigger anti-trust issues from the government.

Xandr, which generated about $2 billion in revenue in 2019, had hoped to capitalize on the burgeoning digital ad market focusing on non-video displays. That strategy has apparently backfired as online video ads dominate and online TV publishers were reluctant to sell their ad inventory through Xandr due to AT&T’s competing HBO Max platform, The Journal reported, citing sources familiar with the situation.

Crunchyroll, which AT&T acquired in its purchase of Otter Media, is on the block for a reported $1.5 billion with interested suitors including Sony Corp.

Disney Selling Bonds to Pay Down Fox Acquisition Debt

When the Walt Disney Co. acquired 20th Century Fox Film for $71 billion, it also assumed more than $13 billion of Fox’s outstanding debt.

Despite ongoing downsizing at Fox Studios and selloff of Fox’s regional sports TV networks, Disney Sept. 3 announced the commencement of an offering of one or more series of senior unsecured notes and fixed rate senior unsecured notes pursuant to an effective shelf registration statement filed with the Securities and Exchange Commission.

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The new bonds are guaranteed by TWDC Enterprises 18 Corp., a subsidiary of Disney. 

Disney said it intends to use the net proceeds from the bond offering pay down previously existing notes related to the Fox acquisition, in addition to prepaying in full the aggregate principal amount outstanding under a “364-Day Credit Agreement,” dated as of March 15, 2019, which lists Disney as the borrower.

AT&T CFO: Corporate Tax Cut a Boon to Corporate Debt

To fiscal hawks, AT&T’s $85 billion acquisition of Time Warner heightened concerns regarding the telecom’s burgeoning corporate debt.

In an era of shrinking pay-TV households and industry consolidation, Wall Street hasn’t taken lightly to AT&T’s $183 billion debt through the third quarter (ended Sept. 30, 2018) following the acquisition.

The company’s stock was down more than 20% at the end of 2018 with a debt ratio of 2.8. The net debt to pre-tax earnings ratio indicates how many years it would take for a company to pay back its debt if net debt and pre-tax earnings are held constant.

Wall Street looks for a company to have a debt ratio between 0.3 and 0.6, according to some analysts. AT&T has pledged to reduce its debt by $20 billion in 2019, at debt ratio to 2.5.

Speaking Jan. 9 at the Citi 2019 Global TMT West confab in Las Vegas, AT&T CFO John Stephens reiterated management’s vow to streamline debt through cost-cutting and asset sales — including its stake in Hulu.

Stephens also reminded analysts that with interest rates at historically low levels, combined with President Trump’s 40% cut to corporate tax rates, debt can be viewed from a different perspective.

“You lower your federal tax rate by 40%, it has an impact. And it’s real. And it’s economic. It’s cash,” Stephens said. “When you think about those two changes, I understand how people might have a differing view on leverage levels. We’re sticking to what we’ve told you and we’re really focused – laser focused on 2019 and getting it into that 2.5 range.”