AT&T is promoting part of its TV business, which consists of the DirecTV, AT&T TV and U-verse manufacturers, to the private equity agency TPG in a spinoff deal because it appears to shed property to deal with a burdensome debt load and concentrate on its cellular phone and streaming companies.
The deal, which is able to give TPG a minority stake, values the TV business at $16.25 billion — about a third of the $48.5 billion AT&T paid only for DirecTV in 2015.
AT&T carries $157 billion of debt, as of December, the consequence of megadeals together with its purchases of DirecTV and Time Warner, which it paid $85.four billion for in 2018. The leisure business has been disrupted by Netflix and an array of rivals preventing for viewers’ consideration, complicating plans for DirecTV, which misplaced greater than three.2 million subscribers in 2020, and for HBO, thought-about the crown jewel of Time Warner’s business.
Investors have nervous that AT&T won’t be able to turn out to be worthwhile sufficient to handle the debt load. The firm made about $53.eight billion in pretax revenue final yr, which means it carries a little greater than $three of complete debt for each greenback of pretax revenue. Traditionally, AT&T prefers that ratio to be nearer to 2.5 to 1.
Under the phrases of the deal with TPG, AT&T will personal 70 % of the brand new stand-alone firm, which is able to go by DirecTV, and TPG will personal 30 %. The board of the brand new entity will embody two representatives from every firm and the chief govt of AT&T’s video unit, Bill Morrow.
The corporations hope to repair challenges going through DirecTV — particularly a subscriber base that has been bleeding prospects sooner than most pay-TV companies. Annual gross sales on the DirecTV group fell 11 % final yr to $28.6 billion, and working revenue decreased 16.2 % to $1.7 billion. The firm can be relying on development of AT&T TV, the corporate’s new service that streams TV over the internet to a set-top box.
“We certainly didn’t expect this outcome when we closed the DirecTV transaction in 2015, but it’s the right decision to move the business forward,” said John Stankey, AT&T’s chief executive, who as an executive at WarnerMedia led both the DirecTV and Time Warner deals.
TPG has ample experience with corporate partnerships, including taking a joint stake in Intel’s McAfee computer security unit and teaming up with Humana in its deal for the hospice provider Kindred. It has owned parts of Spotify, Creative Artists Agency, the cable provider Astound Broadband, and Entertainment Partners, which provides software to the entertainment and video industry.
AT&T has not ruled out more divestitures.