AT&T is considering a sale of a minority stake in its pay-TV operations, spanning DirecTV, AT&T Now, and U-Verse. Apollo Management is set to submit final bids for a stake in the pay-TV unit in December alongside other private-equity outfits, with a deal likely to value pay-TV service DirecTV at less than the USD 67 valuation it held when AT&T acquired it with debt five years ago.
The deal could include 30% to 49% of the combined pay-TV distribution businesses. Under the terms of the proposed agreement, AT&T would withhold the majority of the pay-TV business industry, and continue to oversee the physical infrastructure that supports IPTV service U-verse. The buyer, however, would acquire rights to control the pay-TV distribution and consolidate the pay-TV operation in its accounts. AT&T acquired DirecTV in 2015 for $67 billion with debt. The telco would not sell its DirecTV Latin America business as part of the deal.
Though valuations haven’t been determined, a deal may value DirecTV at less than USD 15 billion, including debt. “They have to manage a portfolio of declining businesses by slashing their costs, while still not hurting their cash generation prospects too badly, while simultaneously finding a way to sustain a dividend, pay down debt enough to placate rating agencies, and, all the while, invest in the few growth areas they’ve got that are worthy," Craig Moffett, a Telecommunications Analyst at MoffettNathanson, said.
AT&T ceased the past quarter with approximately 17 million TV subscribers with both pay TV services combinted, representing a 16% decrease from last year. The number of AT&T Now customers dropped by 40% to 683,000. AT&T has been looking to reduce its debt levels following its acquisition of Time Warner and has pivoted its video strategy to focus on streaming offering HBO Max. Its legacy pay-TV offerings have continued to shed subscribers in line with the national trend towards cost-cutting. There has been speculation for some time about a possible sale of the pay-TV business.
They have to manage a portfolio of declining businesses by slashing their costs, while still not hurting their cash generation prospects too badly, while simultaneously finding a way to sustain a dividend, pay down debt enough to placate rating agencies, and, all the while, invest in the few growth areas they’ve got that are worthy.” Craig Moffett Telecommunications Analyst, MoffettNathanson
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