AT&T has reportedly signed a deal with private equity firm TPG to spin off its DirectTV, AT&T TV, and U-Verse units, according to a Securities and Exchange filing on Thursday.
According to the deal, both companies will form a new company called DirecTV that will own and operate the spun-off video services. Bill Morrow, the chief executive officer of AT&T’s U.S. video units was named the CEO of the new company.
The new company is valued at $16.25 billion, according to AT&T. In 2015, AT&T acquired DirecTV for $48.5 billion, with debt, and hoped to improve the company’s profitability by 2015 by pairing it with AT&T’s wireless service.
“With our acquisition of DirecTV, we invested approximately $60 billion in the US video business,” AT&T said in a material distributed across news outlets. “It’s fair to say that some aspects of the transaction have not played out as we had planned, such as pay-TV households in the US declining at a faster pace across the industry than anticipated when we announced the deal back in 2014. In fact, we took a $15.5 billion impairment on the business in 4Q20.”
In recent years, the demand for digital distribution of video has increased, affecting the demand for cable TV. Television companies are starting to embrace more of this development and are now offering digital TV services to consumers.
If the AT&T and TPG transaction is successful, AT&T will own 70% of the common equity and TPG will own 30%. The new company’s board will be chaired by two representatives from both companies, and also Morrow. Once all has been done, AT&T will remove the video business from its balance sheet.
Spinning off DirecTV into a standalone video company will help AT&T give more attention to its “strategic” areas of 5G network service, fiber internet, and HBO Max.
“As the pay-TV industry continues to evolve, forming a new entity with TPG to operate the US 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. “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.”
Both companies have said that they hope to close the transaction by the second half of 2021 as it is “subject to customary closing conditions and to regulatory reviews.” AT&T will receive $7.6 billion in cash from an initial sale to reduce outstanding debts.