AT&T spins out DirecTV as a $16B company, a quarter of what it paid in 2015

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AT&T today announced plans to spin out its various video businesses — DirecTV, AT&T TV, and U-Verse — into a new company that it will jointly control with TPG Capital. The deal sees AT&T holding on to a 70 percent stake in the company, with TPG getting the other 30. “The transaction to separate AT&T’s US video business into New DirecTV implies an enterprise value for the new company of $16.25 billion.”

AT&T paid a total of $67 billion to buy DirecTV: it landed the satellite provider for $48.5 billion in 2014, and the rest was debt that AT&T took on. With this “premium new video entity” valued at less than a quarter of that, you can see how just how badly the original mega-acquisition has fared. “We certainly didn’t expect this outcome when we closed the DirecTV acquisition in 2015,” AT&T John Stankey said on a call with analysts and investors after the news was made public.

The deal for this new company, which will be led by AT&T US video boss Bill Morrow, is expected to close in the second half of 2021. AT&T will net $7.8 billion as part of the pact.

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AT&T says that all content deals — including NFL Sunday Ticket — will move along to the “new” DirecTV. The company is also insisting that its WarnerMedia channels like CNN, TBS, and TNT will remain a core part of the video properties. “Customers aren’t going to see a change” in bundles or programming in the near term, Stankey said.

Activist investors have long urged AT&T to deal with its DirecTV problem; Elliott Management has said the transaction produced “damaging results.” DirecTV’s business has continued to suffer declining subscribers as consumers have shifted en masse to streaming entertainment. But AT&T’s deeply confusing branding choices for its video services haven’t helped matters.

“Today’s announcement lines up with the evolution of our business,” Stankey said on the call. “We’re coming off a year where we saw strong wireless subscriber growth,” Stankey said, and he also called HBO Max “an important part of our future.” AT&T has said it’s focused on the mobile business — it just spent $23.4 billion in the FCC’s C-band spectrum auction — and content efforts like HBO Max.

Stankey added that AT&T examined “every possibility under the sun” for what to do with its video assets before deciding on the deal with TPG.

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