AT&T will spin off its video business including DirecTV into a new company in a deal with TPG, which acquired 30% of the new company. The agreement values the forthcoming company, known as New DirecTV, at $16.25 billion.
That value is roughly 30% of what AT&T paid for the satellite company, which it bought for $49 billion in 2015.
Under the terms of the transaction, New DirecTV will be jointly governed by a board with two representatives from each of AT&T and TPG, as well as a fifth seat for the CEO, which at closing will be Bill Morrow, CEO of AT&T’s U.S. video unit. Following the close of the transaction, AT&T will own 70% of the common equity and TPG will own 30%.
AT&T will also receive around $7.8 billion in cash. That is comprised of $7.6 billion in cash (the $1.8 billion contributed by TPG, plus $5.8 billion raised by DirecTV) and $200 million of existing DirecTV debt.
AT&T bought DirecTV at the height of the pay-TV ecoystem, which had more than 100 million customers. That has since declined rapidly to around 80 million in 2021. There had been rumors over the past year that AT&T was looking to find a buyer for its struggling video business. The new company will not include HBO Max, AT&T’s regional sports networks or AT&T’s U-verse network assets.
During a conference call shortly after the deal announced, AT&T CEO John Stankey did not dismiss a further combination between the new DirecTV-led company and someone else, particularly Dish Network. “We will be diligent about exploring second options,” Stankey said. “If something else occurs, we get 70% of the value.” Rumors of a Dish-DirecTV combination have floated for years and Dish CEO Charlie Ergen has spoken openly about that being a possibility. Regulators have blocked any attempts in the past.
“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,” Stankey said in an earlier statement announcing the deal. “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. As the pay-TV industry continues to evolve, forming a new entity with TPG to operate the U.S.video business separately provides the flexibility and dedicated management focus needed to continue meeting the needs of a high-quality customer base and managing the business for profitability. TPG is the right partner for this transaction and creating a new entity is the right way to structure and manage the video business for optimum value creation.”
“Video remains a core service for tens of millions of households,” David Trujillo, partner at TPG, said. “Since its launch in 1994, DirecTV has continually evolved its product, content and service to provide customers an industry-leading video offering. As video consumption habits evolve, the new DIRECTV will continue investing in its offering to provide value to its customers, including through next-generation streaming pay-TV services. TPG looks forward to partnering with AT&T and new DirecTV leadership to bring the right focus, attention and execution in support of new DirecTV’s position as a competitive video provider for the benefit of its customers and employees.”