Sources told FOX Business’s Charlie Gasparino that Apollo’s offer of about $ 12 billion is unlikely to include a partnership with DISH Network.
AT&T Inc. has agreed to sell a stake in its pay-TV unit to private equity firm TPG and tackle the struggling business and pull back the telecommunications giant from expensive entertainment.
The transaction will move the DirecTV and AT&T TV services in the US into a new entity jointly managed by the new partners. AT&T will retain a 70% stake in the business. TPG will pay $ 1.8 billion in cash for a 30% stake.
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The deal values the new company at $ 16.25 billion with approximately $ 6.4 billion in debt. That is well below the $ 49 billion – about $ 66 billion, including debt – that the Dallas company paid to buy international satellite operator DirecTV in 2015. AT&T recently scrapped $ 15.5 billion of the unit’s value, reflecting the service’s dull prospects.
AT&T said it would receive about $ 7.8 billion in cash from the deal to pay off debt. The proceeds include $ 5.8 billion that the new company will borrow from banks and repay to AT&T.
AT&T will be able to stop including the results of its US video operations in its consolidated financial statements. The telecommunications company also agreed to cover up to $ 2.5 billion in losses related to DirecTV’s NFL Sunday Ticket package.
Bidders, including TPG, and its rival Apollo Global Management Inc. have been lying to the company since The Wall Street Journal first reported on the sale in August.
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AT&T bought DirecTV near the peak of the pay-TV market before the sector cut. Netflix Inc. had about 75 million subscribers worldwide, well below the more than 200 million subscribers they serve today. Cheap channel bundles that cost $ 30 a month or less have not yet penetrated the market.
“The disruption in pay-TV exceeds our original expectations,” AT&T chief financial officer John Stephens said in an interview, adding that the satellite TV business helped generate cash for the company even as its customer base declined. . Mr. Stephens said the new ownership structure is a very attractive transaction that yields TPG’s expertise and the upfront cash payment. ‘
| Ticker | Safety | Last | Alter | Alter% |
|---|---|---|---|---|
| T | AT&T INC. | 28.64 | -0.77 | -2.62% |
AT&T said the new venture, called DirecTV, in El Segundo, California, is expected to retain nearly all AT & T employees currently working in the unit and that customer service will not be affected. The unit had revenue of about $ 28 billion and 17.2 million customers last year.
The new venture is run by Bill Morrow, an AT&T CEO, who has spent the past year on a project to cut the overall spending of the broader telecommunications company. The new DirecTV has five board members, two from each owner, in addition to Mr. Morrow.
TPG has experience with pay-TV investments. In November, he announced that Astound would sell Broadband, the operator of cable brands, including RCN, for $ 8.1 billion, including debt. Its media and entertainment investments include Spotify Technology SA, the talent agency CAA and the wage service company Entertainment Partners.
The buyout firm also has a history of cutting assets from large companies and partnering with their owners to improve them. In 2016, TPG acquired a 51% stake in McAfee LLC from Intel Corp’s cyber security software and in 2018 a stake in Allogene Therapeutics Inc., then a unit of drug manufacturer Pfizer Inc.
TPG’s investment in DirecTV comes in the form of senior preference shares with a 10% cash coupon.
AT&T bought DirecTV more than five years ago and merged the company with its smaller cable TV service, which made the mobile phone carrier overnight in the country’s largest pay-TV provider. It also saddled the company with a mountain of debt that grew after the acquisition of entertainment producer Time Warner Inc. in 2018.
The two megadeals allowed AT&T to launch cable giant Comcast Corp. and its NBCUniversal division. But the business has come together near the point of a ‘cut-and-cut’ trend that has prompted millions of Americans to cancel their satellite and cable TV service.
AT&T has lost 7 million domestic pay-TV subscribers over the past two years. Comcast lost about 2 million such customers in the same period. Dish Network Corp., DirecTV’s satellite TV competitor, has shaken off about 1 million subscribers.
The melting satellite business and the debt acquired to acquire it have been weighing on AT & T’s inventory for the past few years. for sale. The company launched a formal sales process for the video unit after John Stankey, a longtime CEO of AT&T, became CEO in June.
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The transfer of some of the pay-TV debt is helping AT&T reduce its liabilities, which could increase in the coming months after the carrier agreed to spend $ 23.4 billion on wireless licenses. A net debt burden, which listed above $ 180 billion after the Time Warner deal, was recently about $ 148 billion.
Moody’s Investors Service told customers on Wednesday that the spectrum’s flow could suppress AT & T’s credit rating, which is two notches above junk territory. In a brief note Thursday, Moody’s called the DirecTV deal ‘moderately credit-positive’ because it would provide cash to cover spectrum costs.
AT & T’s entertainment strategy is now based on the success of HBO Max, a streaming service built on top of the premium cable channel brand. The service was launched in May 2020 and includes a plethora of similar services from, among others, Netflix Inc., Amazon.com Inc. and Walt Disney Co.
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HBO Max initially struggled to pull its existing customer base away from subscriptions offered through partnerships with cable TV providers and device manufacturers. Growth improved towards the end of 2020 after executives entered into transactions with companies such as Amazon and Roku Inc.
The service also received a flood of notifications through new movie releases from its sister studio Warner Bros. to show online the same day they arrive in theaters. Mr. Stankey said the move, which has supported a Hollywood model for decades, was a temporary response to the cash disruption caused by the coronavirus pandemic. HBO Max counted 17 million activated accounts at the end of December