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AT&T has reached an agreement with TPG Capital that calls for struggling satellite TV provider DirecTV to become a stand-alone company in which TPG would have a 30% stake.
The parties have been in talks for months as AT&T sought to find a solution to the issue of DirecTV’s subscriber losses which were slowing the company’s overall results. The deal with TPG involves an enterprise value of $ 16.25 billion, a far cry from the $ 48.5 billion AT&T paid to DirecTV in 2015. AT&T will own the remaining 70% of the new entity.
The deal covers DirecTV, AT&T TV and AT & T’s smaller U-verse MVPD service. The new company, to be called DirecTV, will be led by Bill Morrow, CEO of AT & T’s American video series. The new DirecTV model will be governed by a five-seat board of directors, two for AT&T, two for TPG Capital and one for Morrow.
“This agreement aligns with our investment and operational focus on connectivity and content, as well as the strategic activities that are critical to growing our customer relationships in 5G wireless, fiber and HBO Max. And this supports our deliberate capital allocation commitment to invest in growth areas, maintain the dividend at current levels, focus on debt reduction, and restructure or monetize non-core assets, ”said John Stankey, CEO of AT&T. “As the pay TV industry continues to evolve, the creation of a new entity with TPG to separately operate the video business in the United States provides flexibility and Dedicated management guidance required to continue to meet the needs of a high quality customer base and to run 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 activity for optimal value creation. “
DirecTV recorded a net loss of 617,000 subscribers in the fourth quarter, bringing its subscriber base to a total of 16.5 million; AT&T. The company has seen a steady decline in subscriber numbers for more than two years, although AT&T noted that its sequential decline has improved over the past five quarters.
AT&T owns video assets that are not included in the deal, including its video operations in Latin America, regional sports networks, U-verse network assets, and AT & T’s investment in Sky Mexico. None of WarnerMedia’s assets, including HBO Max, are part of the transaction. AT&T also pledged to absorb $ 2.5 billion in net losses from the “NFL Sunday Ticket” package – the premium channel that allows subscribers to watch any NFL game played that day. “Sunday Ticket” is known to have been a loss leader for DirecTV.
In total, AT&T will get $ 7.6 billion in cash from the new entity DirecTV, and the private equity giant will take on an additional $ 200 million in existing AT&T debt. TPG will provide $ 1.8 billion in cash in exchange for preferred shares in the company. New DirecTV has funding commitments of $ 6.2 billion, of which $ 5.8 billion will be paid to AT&T in cash.
“We look forward to working with AT&T, Bill and the entire talented team at the new DirecTV to create a seamless customer experience through the separation of the company,” said John Flynn, Director of TPG. “We are particularly excited about the opportunity to develop DirecTV’s new streaming video service, leveraging the company’s leading pay television platform, a talented workforce and a large subscriber base to make it a leading next-generation video provider with top-notch content. and customer experience. “
Morrow joined AT&T in 2019 with a charter to turn around the company’s fortunes. He had previously managed similar assignments with Vodafone Australia, Vodafone Europe and Pacific Gas and Electric.
AT&T said it would use the cash proceeds from the sale to pay off the debt.
The parties can terminate the agreement if it is not reached by November 25, although that deadline may be extended until May 25, 2022, in accordance with AT & ‘s Securities and Exchange Commission filing. T.
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