AT&T Spinning Off US Video Distribution Business for $7.8B

AT&T will spin off its U.S. video distribution business in a $7.8 billion deal with TPG that will give the investment firm a 30% stake to AT&T's 70%. The telco said Thursday New DirecTV -- made up of its DirecTV, AT&T TV and U-verse video services -- will have a five-person board: two people each from AT&T and TPG, plus the new company's CEO, Bill Morrow, who currently heads AT&T's U.S. video unit. The transaction is expected to close in the second half of the year. This "aligns with our investment and operational focus on connectivity and content, and the strategic businesses that are key to growing our customer relationships across 5G wireless, fiber and HBO Max," said AT&T CEO John Stankey. He added it's in line with plans to invest in growth areas, maintain its dividend, focus on debt reduction "and restructure or monetize non-core assets." The spinoff "provides the flexibility and dedicated management focus needed to continue ... managing the business for profitability." “We certainly didn’t expect this outcome” when AT&T closed on DirecTV in 2015, Stankey said in a call with analysts. He said it lines up with “current realities of the market" and AT&T’s focus on connectivity and content, and improves the “overall growth profile” of the remaining core business. The carrier had strong wireless subscriber and fiber customer growth in 2020, and HBO Max adoption is surpassing expectations, he said. Asked about a similar sale of AT&T’s Latin American video assets, Stankey said the company has looked at opportunities for monetizing them and “we’ll continue to look at them … if the right opportunity popped up.” AT&T said it will receive $7.6 billion in cash from New DirecTV at close, which it will use to pay down debt, and the spinoff will assume $200 million in existing DirecTV debt. It said TPG will pay $1.8 billion in cash to New DirecTV for its stake, and New DirecTV has secured $6.2 billion in bank group funding. TPG Principal John Flynn said it anticipates growing New DirecTV's streaming video service while continuing DBS service to subscribers. AT&T said it and DirecTV will have a commercial agreement to continue offering bundled pay-TV service for its wireless and internet customers. Analysts said AT&T is under pressure to pay down debt after its big spending in the C-band auction (see 2102250046).