AT&T is selling part of its TV business, which consists of the DirecTV, AT&T TV and U-verse brands, to the private equity firm TPG in a spinoff deal as it looks to shed assets to deal with a burdensome debt load and focus on its mobile telephone and streaming 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 AT&T paid just for DirecTV in 2015.
AT&T carries $157 billion of debt, as of December, the result of megadeals including its purchases of DirecTV and Time Warner, which it paid $85.4 billion for in 2018. The entertainment industry has been disrupted by Netflix and an array of competitors fighting for viewers’ attention, complicating plans for DirecTV, which lost more than 3.2 million subscribers in 2020, and for HBO, considered the crown jewel of Time Warner’s business.
Investors have worried that AT&T will not be able to become profitable enough to manage the debt load. The company made about $53.8 billion in pretax profit last year, meaning it carries a little more than $3 of total debt for every dollar of pretax profit. Traditionally, AT&T prefers that ratio to be closer to 2.5 to 1.
Under the terms of the deal with TPG, AT&T will own 70 percent of the new stand-alone company, which will go by DirecTV, and TPG will own 30 percent. The board of the new entity will include two representatives from each company and the chief executive of AT&T’s video unit, Bill Morrow.
The companies hope to fix challenges facing DirecTV — namely a subscriber base that has been bleeding customers faster than most pay-TV services. Annual sales at the DirecTV group fell 11 percent last year to $28.6 billion, and operating profit decreased 16.2 percent to $1.7 billion. The company is also counting on growth of AT&T TV, the company’s new service that streams TV over the internet to a set-top box.
“We certainly didn’t expect this outcome when we closed the DirecTV transaction in 2015, but it’s the right decision to move the business forward,” said John Stankey, AT&T’s chief executive, who as an executive at WarnerMedia led both the DirecTV and Time Warner deals.
TPG has ample experience with corporate partnerships, including taking a joint stake in Intel’s McAfee computer security unit and teaming up with Humana in its deal for the hospice provider Kindred. It has owned parts of Spotify, Creative Artists Agency, the cable provider Astound Broadband, and Entertainment Partners, which provides software to the entertainment and video industry.
AT&T has not ruled out more divestitures.