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AT&T to spin out DirecTV in US$1.8bn deal with TPG Capital

US telecommunications giant to absorb US$2.5bn of losses related to NFL Sunday Ticket.

26 February 2021 Tom Bassam

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  • Bill Morrow, current head of AT&T’s US video unit, set to take over as new DirecTV firm’s CEO
  • DirecTV, AT&T TV and U-Verse services to form backbone of new company with AT&T holding 70% stake
  • HBO Max and AT&T’s RSNs not included in transaction

AT&T has agreed a definitive deal with TPG Capital to spin out the US telecommunications giant’s DirectTV broadcast business in a move that sees the private equity firm reportedly pay US$1.8 billion in cash.

The deal for 30 per cent of the DirecTV unit, which will consist of the DirecTV, AT&T TV and U-Verse services, implies a US$16.25 billion enterprise value for the new company. That figure is significantly below the US$48.5 billion AT&T paid for DirecTV in 2015.

The new jointly owned venture’s board will be made up of two representatives from each of AT&T and TPG, TPG Capital’s parent, as well as a fifth seat for the chief executive. When the deal closes in the second half of 2021, Bill Morrow, current head of AT&T’s US video unit, is set to be named chief executive of the new DirectTV company.

The multi-faceted transaction looks likely to further disrupt the US sports rights sector, as DirecTV currently pays US$1.5 billion for the National Football League’s (NFL) out-of-market Sunday Ticket package, in a deal which concludes at the end of the 2022 season.

The contract is acknowledged as a loss-leader for DirecTV, which is expected to drop the contract in the NFL’s next round of domestic broadcast rights deals. According to the companies, the deal factored in ‘the debt and the elimination of up to US$2.5 billion in NFL Sunday Ticket net losses, which will be funded by AT&T’.

It is widely expected that the Sunday Ticket package will go to a subscription streaming service when the next round of negotiations are complete. Amazon, Apple, DAZN and ESPN+ have all been linked with a deal for the out-of-market rights.

AT&T confirmed that its HBO Max streaming platform, which it owns through WarnerMedia, the Latin American broadcast operations company Vrio, regional sports networks, U-verse network assets and Sky Mexico investment were not included in the deal with TPG.

When the transaction closes, AT&T expects to receive US$7.8 billion, including US$7.6 billion in cash and a US$200 million assumption of existing DirecTV debt. In addition to TPG’s US$1.8 billion, AT&T’s return will come in the form of US$6.2 billion that the new DirecTV company has secured in committed financing from its bank group. US$5.8 billion of that financing is expected to be paid to AT&T in cash, with US$200 million going towards existing DirecTV debt.

In a call with analysts, AT&T chief executive John Stankey acknowledged the latest deal was not what was envisioned when the company acquired DirecTV.

“We certainly didn’t expect this outcome when we closed the DirecTV transaction in 2015,” he said. “But it’s the right decision to move the business forward, consistent with the current realities of the market and our strategy.”

DirecTV currently has 16.5 million subscribers, with the fourth quarter of 2020 also seeing a net loss of 617,000 paying customers.

AT&T has agreed a deal with TPG Capital to spin out DirectTV broadcast business

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