AT&T is spinning off part of its TV business, which consists of the DirecTV, AT&T TV and U-verse brands, to private equity firm TPG in an attempt to run down assets to cope with an onerous debt burden and focus on their mobile phone streaming company.
The deal, which gives TPG a minority stake, values the TV business at $ 16.25 billion – about a third of the $ 48.5 billion AT&T paid just for DirecTV in 2015.
AT&T has $ 157 billion in debt in December, driven by megadeals, including the DirecTV and Time Warner purchases, which were paid $ 85.4 billion in 2018. The entertainment industry was disrupted by Netflix and a number of competitors vying for viewers. Attention, complicated plans for DirecTV, which lost more than 3.2 million subscribers in 2020, and for HBO, which is considered the crown jewel of Time Warner’s business.
Investors feared that AT&T will not be profitable enough to handle the debt burden. The company posted pre-tax profits of approximately $ 53.8 billion last year, which means that for every dollar of pre-tax profit it has, it carries just over $ 3 in total debt. Traditionally, AT&T preferred that this ratio be closer to 2.5 to 1.
Under the contract with TPG, AT&T will own 70 percent of the new stand-alone company, which will be acquired by DirecTV, and TPG will own 30 percent. The new company’s board of directors will consist of two representatives from each company and AT & T’s video unit manager Bill Morrow.
The companies hope to solve the challenge for DirecTV – namely, a subscriber base that is bleeding customers faster than most pay-TV services. The DirecTV Group’s annual revenue declined 11 percent to $ 28.6 billion last year, and operating profit declined 16.2 percent to $ 1.7 billion. The company also anticipates growth in AT&T TV, the company’s new service that broadcasts TV to a set-top box over the Internet.
“We certainly did not expect this result when we closed the DirecTV transaction in 2015, but it is the right decision to move the business forward,” said John Stankey, CEO of AT&T, who is an executive at WarnerMedia and DirecTV as well as Time headed Warner acts.
TPG has extensive experience in corporate partnerships, including a joint stake in Intel’s McAfee computer security unit and working with Humana on the contract for hospice provider Kindred. It owns parts of Spotify, the Creative Artists Agency, cable provider Astound Broadband and Entertainment Partners, who provide software for the entertainment and video industries.
AT&T has not ruled out further sales.