TPG takes DirecTV stake
February 26, 2021
By Chris Forrester
As expected, AT&T is to sell off a slice of DirecTV to TPG and spin off the company to a new business.
Private equity firm TPG will then own 30 per cent of the new entity with AT&T holding on to the balance. The deal is expected to close in the second half of this year.
AT&T will directly receive $7.8 billion (€6.4bn) in cash, but this sum will only see TPG paying $1.8 billion directly, with the balance coming in the form of new debt, some $5.8 billion, from the newly established business.
‘New’ DirecTV, which will include AT&T’s other pay-TV elements including AT&T TV and U-verse, will also take on $200 million in debt from AT&T.
AT&T will use the cash received to reduce corporate debt.
The formation of the new business brings to an end what can only be described as a catastrophic saga for AT&T which one observer described as “infamous” since AT&T paid more than $49 billion for DirecTV back in 2015 plus debt which took the overall bill to some $67 billion when debt was included.
That purchase was a “nonsensical” merger which will go down in history “as one of the worst deals ever made,” according to Craig Moffett, senior telecom analyst at MoffettNathanson.
DirecTV is still generating positive cashflow of some $4 billion annually.
However, the deal sees DirecTV given a value of $16.25 billion, and the challenge now is for the New DirecTV is to further staunch the never-ending subscriber losses and turn a profit.
“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,” said AT&T CEO John Stankey in a statement. “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.”