AT&T Inc. (NYSE: T) and private equity group TPG Capital say they have reached an agreement that will see AT&T spin out its U.S. video services businesses into a new version of DIRECTV (“New DIRECTV”). TPG will then buy a 30% stake in the spin out, which will consist of the current DIRECTV, the AT&T TV streaming video service, and general U-verse video services. The partners expect to complete the deal in the second half of this year, subject to the usual closing conditions and regulatory approvals.
The transaction values the spin out at $16.25 billion. New DIRECTV has secured $6.2 billion in committed financing from its bank group, $5.8 billion of which AT&T will receive in cash. The new company also will assume $200 million of existing DIRECTV debt from AT&T. TPG will pay an additional $1.8 billion in cash for its share, which will comprise preferred units and a 30% interest in common units of New DIRECTV. That would bring AT&T’s total haul to $7.6 billion in cash plus the assumption of the $200 million of DIRECTV debt. AT&T says it will use the money it receives from the spin out and share sale to further reduce its debt.
AT&T asserts the businesses included in the deal had approximately 17.2 million subscribers as of the end of 2020. For full-year 2020, the unit saw more than $28 billion in revenues, operating income of $1.7 billion, operating income margins of 6%, $4 billion in EBITDA, and EBITDA margins of about 14%. Those subscribers will continue to receive services from New DIRECTV and the transition should be seamless to them, AT&T and TPG assert. It also should not lead directly to layoffs; those employees who are not transferred to the new company will remain employed by AT&T, the two companies stated.
Bill Morrow, CEO of AT&T’s U.S. video unit, will be CEO of New DIRECTV and will have a seat on the company’s five-person board. The other four seats will be split evenly between AT&T and TPG. AT&T will retain full ownership of HBO Max, the Vrio Latin American video operations, its regional sports networks, U-verse network assets, and its stake in Sky Mexico.
“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. 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,” said AT&T CEO John Stankey. “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. 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,” added David Trujillo, partner at TPG. “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.”
For related articles, visit the Business Topic Center.
For more information on FTTX technology and suppliers, visit the Lightwave Buyer’s Guide.
To stay abreast of fiber network deployments, subscribe to Lightwave’s Service Providers and Datacom/Data Center newsletters.
Stephen Hardy | Editorial Director and Associate Publisher, Lightwave
Stephen Hardy is editorial director and associate publisher of Lightwave and Broadband Technology Report, part of the Lighting & Technology Group at Endeavor Business Media. Stephen is responsible for establishing and executing editorial strategy across the both brands’ websites, email newsletters, events, and other information products. He has covered the fiber-optics space for more than 20 years, and communications and technology for more than 35 years. During his tenure, Lightwave has received awards from Folio: and the American Society of Business Press Editors (ASBPE) for editorial excellence. Prior to joining Lightwave in 1997, Stephen worked for Telecommunications magazine and the Journal of Electronic Defense.
Stephen has moderated panels at numerous events, including the Optica Executive Forum, ECOC, and SCTE Cable-Tec Expo. He also is program director for the Lightwave Innovation Reviews and the Diamond Technology Reviews.
He has written numerous articles in all aspects of optical communications and fiber-optic networks, including fiber to the home (FTTH), PON, optical components, DWDM, fiber cables, packet optical transport, optical transceivers, lasers, fiber optic testing, and more.
You can connect with Stephen on LinkedIn as well as Twitter.