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AT&T, TPG strike deal to spin off DirecTV, AT&T TV and U-verse into new company

TPG’s stake puts a value on the pay TV business that’s only a fraction of the $67 billion AT&T paid for DirecTV.

AT&T will spin off its DirecTV-related business into a new company in a deal with private equity firm TPG that will net the Dallas-based telecommunications giant about $7.8 billion to pay down debt.

The deal announced Thursday with TPG is a leveraged buyout in which the private equity firm will contribute $1.8 billion and the new company will take on $6.2 billion in debt. The transaction values the new business at about $16 billion, a fraction of what AT&T paid for DirecTV in 2015. AT&T spent $67.1 billion, including debt, on the acquisition.

The new private business, which also includes AT&T TV and U-verse, will be named DirecTV, with AT&T keeping a 70% stake and TPG owning 30%. It will be governed by a five-person board that includes three representatives from AT&T and two from TPG. AT&T’s video business chief executive Bill Morrow will serve as a board member and the new company’s CEO.

The new company will be headquartered in El Segundo, Calif., and Denver, according to AT&T.

In an investor call Thursday afternoon, AT&T CEO John Stankey declined to comment on whether a future merger with rival Dish Network was possible based on terms of the agreement with TPG. Industry experts consider a Dish-DirecTV hookup to be inevitable.

“Customers will continue to have access to premium content via DirecTV and AT&T TV and will receive the same services, channel lineups and customer care experience,” according to the company.

AT&T said customer account information, online access and billing arrangements will remain the same. The company will also retain its Latin America DirecTV business.

Thursday’s announcement comes after months of speculation about the potential sale of AT&T’s satellite TV business as well as other parts of the company.

AT&T’s TV business has lost millions of subscribers in recent years to cord-cutting and became a key focus of an activist investor who aggressively pushed the company in 2019 to offload DirecTV.

“We certainly didn’t expect this outcome when we closed the transaction of DirecTV in 2015,” Stankey told investors.

At the end of 2020, DirecTV, AT&T TV and U-Verse had 17.2 million subscribers and posted more than $28 billion in revenue. Its operating income was $1.7 billion.

AT&T said the deal will strengthen its balance sheet and let it focus on the expensive task of upgrading its wireless network with next-generation 5G technology. That update requires expensive investments in radio spectrum — it just spent $23.4 billion for bandwidth in the latest U.S. government auction — and AT&T also plans to plow more resources into fiber-optic internet infrastructure and HBO Max.

Credit rating company Moody’s heralded the deal with TPG as a positive move, calling DirecTV “a drag on the overall equity valuation” of AT&T.

“It is logical that management would sell a part of this declining business and structure the sale such that it is deconsolidated from AT&T,” Moody’s said Thursday.

AT&T has been reducing the value of its DirecTV business on its balance sheet with the latest non-cash charge amounting to $15.5 billion.

DirecTV has generated cash flow of $4 billion annually since it was acquired, and AT&T said it expects similar results this year. In 2022, AT&T expects to bring in $1 billion in revenue based on its stake in the new company.

The deal is expected to close in the second half of 2021. AT&T said the spinoff will improve the pre-tax profit of its core businesses.

AT&T has been working to balance competing cash needs to invest in film production and programming at its HBO Max streaming service, maintain its dividends for investors that total nearly $15 billion a year and pay down nearly $154 billion in long-term debt.

The company expects the majority of its more than 11,000 employees who work for its U.S. video operations to transition to the new DirecTV. The rest will remain with AT&T. The new company will also honor existing collective bargaining agreements with union employees.

The Associated Press and Bloomberg contributed to this report.

Dom DiFurio. Dom is a staff writer covering breaking business news. He writes about the companies and transactions that shape life in North Texas. Dom considers himself among the many transplants that moved to Texas from the crowded coasts who found more than enough reasons to call it home.

ddifurio@dallasnews.com /domdifurio @DomDiFurio
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