(Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)SOPA Images/LightRocket via Getty Images
AT&T T today announced that it would spin-off its money-losing DirecTV, AT&T TV, and U-verses video services into a separate company valued at $16.25 billion in a deal with private equity firm TPG.’
The new firm will be called DirecTV and will run by a board with two representatives from AT&T and TPG along with the company’s CEO Bill Morrow, who currently heads AT&T’s U.S. video unit. At the close of the transaction, AT&T will own 70 percent of DirecTV’s common equity, and TPG will own 30 percent.
According to the companies, the spin-off will put the business in the best position to succeed in the long run and deliver on its commitment to customers, employees, and shareholders.
It also is a stunning reversal of fortune for AT&T, which acquired DirecTV in 2015 for $67 billion including debt, and hoped to market the satellite-TV service with its wireless service in a bundle. Instead, customers dropped DirecTV in favor of Netflix NFLX and other streaming services.
“This agreement aligns with our investment and operational focus on connectivity and content and the strategic businesses that are key to growing our customer relationships across 5G wireless, fiber, and HBO Max. And it 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,” said AT&T CEO John Stankey in a press release.
AT&T’s domestic video business has improved in recent quarters. It hit its peak level of subscriber losses in 2019, and through the fourth quarter of 2020, net losses had improved sequentially for five straight quarters.
After the transaction’s expected closing in the second half of the year, AT&T expects to receive $7.6 billion in cash from DirecTV, which will also assume $200 million in existing DirecTV debt. TPG will contribute $1.8 billion in cash to DirecTV in exchange for preferred units and a 30 percent interest in the new company’s common units.
New DirecTV has secured $6.2 billion in financing from its bank group, $5.8 billion of which will be paid to AT&T in cash.