AT&T is selling part of its TV business, which includes the DirecTV, AT&T TV and U-Verse brands, to private equity firm TPG in a sub-deal when it wants to reduce assets to deal with. with debt burden and focus on mobile phones and online businesses.
The deal, which will give TPG a minority stake, values the TV business at $ 16.25 billion – about a third of the $ 48.5 billion that AT&T paid DirecTV in 2015.
AT&T took on a debt of $ 157 billion, as of December, the results of major debts including the purchases of DirecTV and Time Warner, which it paid off $ 85.4 billion in 2018. The entertainment industry has interrupted by Netflix and a host of competitors for viewers’ attention, complicating plans for DirecTV, losing more than 3.2 million subscribers by 2020 and for HBO, considered the jewel in Time Warner’s business.
Investors were worried that AT&T wouldn’t be able to get enough profits to handle its debt burden. The company made about $ 53.8 billion in pre-tax profits last year, which means it carries a little over $ 3 in total debt for every dollar of profit before tax. Traditionally, AT&T prefers that ratio close to 2.5-1.
Under the terms of the agreement with TPG, AT&T will own 70% of the new independent company operated by DirecTV and TPG will own 30%. The board of directors of the new unit will consist of two representatives from each company and the chief executive officer of AT & T’s video unit, Bill Morrow.
The companies hope to overcome the challenges DirecTV faces – namely that the subscriber base is attracting customers faster than most pay-TV services. DirecTV Group’s annual sales fell 11% last year to $ 28.6 billion, and operating profit fell 16.2% to $ 1.7 billion. The company is also leaning on the growth of AT&T TV, the company’s new service that streams television over the internet to a decoder box.
“We certainly did not expect this result when we closed the DirecTV deal in 2015,” said John Stankey, chief executive officer of AT&T, who was a former chief executive at WarnerMedia who led both DirecTV and Time. But it was the right decision to grow your business. Warner deals.
TPG has extensive experience with business partnerships, including joining a joint stake in Intel’s McAfee computer security unit and partnering with Humana on hospice-provider Kindred deal. . It owns divisions from Spotify, Creative Artists Agency, cable provider Astound Broadband and Entertainment Partners, providing software for the entertainment and video industry.
AT&T does not rule out the possibility of more deals.