AT&T and TPG Capital, the private equity platform of global alternative asset firm TPG, have signed a definitive agreement under which the two parties will establish a new company named Directv, (“New Directv”) that will own and operate AT&T’s U.S. video business unit consisting of the Directv, AT&T TV and U-verse video services.
The transaction to separate AT&T’s U.S. video business into New Directv implies an enterprise value for the new company of $16.25 billion. Under the terms of the deal, New Directv will be jointly governed by a board with two representatives from each of AT&T and TPG, as well as a fifth seat for the CEO, which will be Bill Morrow, CEO of AT&T’s U.S. video unit. Following the close of the transaction, AT&T will own 70% of the common equity and TPG will own 30%.
“This agreement 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. And it supports our deliberate capital allocation commitment to invest in growth areas, sustain the dividend at current levels, focus on debt reduction and restructure or monetize non-core assets. As the pay TV industry continues to evolve, forming a new entity with TPG to operate the U.S. 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. 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,” said John Stankey, CEO of AT&T.
“Video remains a core service for tens of millions of households. Since its launch in 1994, Directv has continually evolved its product, content and service to provide customers an industry-leading video offering. As video consumption habits evolve, the new Directv will continue investing in its offering to provide value to its customers, including through next-generation streaming pay-TV services. TPG looks forward to partnering with AT&T and New Directv leadership to bring the right focus, attention and execution in support of New Directv’s position as a competitive video provider for the benefit of its customers and employees,” added David Trujillo, Partner at TPG.
When the transaction closes, which is expected in the second half of 2021, AT&T expects to receive from New Directv $7.8 billion ($7.6 billion in cash and the assumption from AT&T of $200 million of existing Directv debt). The company also expects to use the proceeds from this transaction to reduce AT&T debt. On the other hand, TPG will contribute $1.8 billion in cash to New Directv in exchange for preferred units and a 30% interest in common units of New Directv.
Furthermore, once the agreement is completed, existing AT&T video subscribers will become New Directv customers and will be able to keep their video service and any bundled wireless or broadband services, as well as HBO Max, plus any associated discounts. All existing content deals will be a part of New Directv.
Forming a new entity with TPG to operate the U.S. video business separately provides the flexibility and dedicated management focus needed to continue meeting the needs of a high-quality customer base ” John Stankey CEO of AT&T