'New DIRECTV' forms to operate AT&T’s U.S. video unit

March 4, 2021
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.

On Feb. 25, AT&T Inc. and TPG Capital, the private equity platform of global alternative asset firm TPG, announced that they 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 transaction, 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 at closing 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%.

AT&T and TPG believe the new structure will provide greater focus, flexibility and resources to best position the business to succeed in the long term and deliver on its commitment to customers, employees and shareholders. New DIRECTV will continue to offer a competitive video service with best-in-class content.

“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,” said AT&T CEO John Stankey. “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.”

“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,” said David Trujillo, Partner at TPG. “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.”

Transaction terms

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). AT&T expects to use the proceeds from this transaction to reduce AT&T debt.

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.

New DIRECTV has secured $6.2 billion in committed financing from its bank group, $5.8 billion of which is expected to be paid to AT&T in cash plus the assumption from AT&T of $200 million of existing DIRECTV debt.

AT&T will contribute its U.S. video business unit to the new entity in exchange for preferred units as well as a 70% interest in the common units of New DIRECTV.

Since AT&T closed the DIRECTV acquisition in 2015, the business has generated cash flows of more than $4 billion per year, and the company expects this to continue in 2021.

New DIRECTV’s CEO Morrow joined AT&T in 2019 to oversee the company’s operational transformation efforts. Morrow’s career includes successfully leading operational transformations of telecom and utility companies, including serving as CEO of Vodafone Hutchison Australia, Vodafone Europe and Pacific Gas & Electric. Morrow and a management team approved by AT&T and TPG will oversee the day-to-day operations of New DIRECTV, and Morrow will report to the New DIRECTV board.

After close, New DIRECTV will have a commercial agreement with AT&T to continue to offer bundled pay-TV service for AT&T’s wireless and internet customers. Additionally, AT&T and New DIRECTV will have commercial agreements in place that will give New DIRECTV video subscribers continued access to HBO Max; allow both companies to serve customers through multiple distribution channels, including retail, online, call centers and indirect sellers; and share revenues for ad inventory management and ad sales.

Once the transaction 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.

When the transaction closes, all existing content deals, including NFL SUNDAY TICKET on DIRECTV, will be a part of New DIRECTV. Customers will continue to have access to premium content via DIRECTV and AT&T TV and will receive the same services, channel lineups and customer care experience. Customer account information, online access and billing arrangements will remain the same.

AT&T and TPG are committed to a smooth transition and seamless customer experience and will work to further improve customer service and bring new features to New DIRECTV’s video services.

Learn more about the transaction.

About the Author

BTR Staff

EDITORIAL
STEPHEN HARDY
Editorial Director and Associate Publisher
[email protected]
MATT VINCENT
Senior Editor
[email protected]
SALES
KRISTINE COLLINS
Business Solutions Manager
(312) 350-0452
[email protected]
JEAN LAUTER
Business Solutions Manager
(516) 695-3899
[email protected]

Sponsored Recommendations

Data Center Interconnection

June 18, 2024
Join us for an interactive discussion on the growing data center interconnection market. Learn about the role of coherent pluggable optics, new connectivity technologies, and ...

The Pluggable Transceiver Revolution

May 30, 2024
Discover the revolution of pluggable transceivers in our upcoming webinar, where we delve into the advancements propelling 400G and 800G coherent optics. Learn how these innovations...

Connecting the world, one fiber at a time

Dec. 12, 2023
The world runs on ethernet: the future of higher speeds

The Journey to 1.6 Terabit Ethernet

May 24, 2024
Embark on a journey into the future of connectivity as the leaders of the IEEE P802.3dj Task Force unveil the groundbreaking strides towards 1.6 Terabit Ethernet, revolutionizing...