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AT&T to Explore a Sale of DirecTV (Report)

Activist investor Elliott Management called for AT&T to sell pay-TV unit last week

AT&T is considering parting ways with DirecTV, either spinning the company off or selling it outright, according to a report in the Wall Street Journal.

According to the report, which cited people familiar with the matter, AT&T is considering multiple options including spinning DirecTV off into a separate public company or combining its assets with rival satellite TV provider Dish Network. The WSJ said that AT&T may ultimately decide to keep DirecTV, which it bought in 2015 for $49 billion.

Representatives for AT&T and Dish declined to comment.

The report comes a week after Elliott Management Corporation, which said that it now manages $3.2 billion worth of AT&T shares, wrote a lengthy letter to the telecom and media giant’s board of directors outlining what Elliott called AT&T’s “long-term underperformance.” In the letter, Elliott went particularly hard against AT&T’s 2014 purchase of satellite TV provider DirecTV and argued that AT&T bought a declining asset. “The pay TV ecosystem has been under immense pressure since the deal closed,” the letter read. “Unfortunately, it has become clear that AT&T acquired DirecTV at the absolute peak of the linear TV market.”

On Sept. 13, a group of AT&T investors filed a class action lawsuit against the AT&T, accusing senior leadership of fabricating thousands of customer accounts for its DirecTV Now streaming service, and issuing misleading statements about the health of the streaming product. In a statement, AT&T said it “plans to fight these baseless claims in court.”

The poor performance of DirecTV Now (now called AT&T Now) was cited in Elliott’s Sept. 9 letter. Elliot pointed out its subscriber losses in the last three quarters. The streaming service had 1.9 million in the third quarter of 2018, but is now at 1.3 million as of Q2 in 2019.

A potential merger with Dish would likely be blocked by regulators, AT&T’s CFO John Stephens said during an investor conference last week. “From a regulatory perspective, it hasn’t been successful and I don’t know that there is any change in that regulatory perspective,” he said. “I understand the industrial logic, but quite frankly it’s been tried and has been rejected.”

In 2001, Dish’s former parent company EchoStar attempted to merge with DirecTV’s former owner, Hughes Electronics. That deal was blocked on antitrust grounds by regulators, who argued it would leave too many rural Americans with only one single pay-TV option.