AT&T closes deal for refurbished DIRECTV

Aug. 3, 2021
AT&T contributed 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 DIRECTV.

AT&T Inc. (NYSE: T) and TPG Capital, the private equity platform of global alternative asset firm TPG, announced on Aug. 2 that the parties have closed their transaction establishing a new company named DIRECTV. This new, separate company will own and operate the DIRECTV, AT&T TV and U-verse video services previously owned and operated by AT&T.

DIRECTV had approximately 15.4 million premium video subscribers at the end of the second quarter of 2021.

AT&T contributed 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 DIRECTV. TPG contributed approximately $1.8 billion in cash to DIRECTV in exchange for preferred units and a 30% interest in common units of the new company.

The new DIRECTV board will include Bill Morrow, CEO of DIRECTV, and the following additional voting board members: Steve McGaw and Thaddeus Arroyo, appointed by AT&T; and David Trujillo and John Flynn, appointed by TPG.

Under the new company, DIRECTV owns and operates the former AT&T U.S. and Puerto Rico video business unit consisting of satellite, streaming and IP video services. The parties say the new business structure allows for "greater focus, flexibility and resources to best position the business to succeed in the long term as well as deliver on a commitment to current and future customers, employees and shareholders."

"This is a watershed moment for DIRECTV as we return to a singular focus on providing a stellar video experience," said DIRECTV CEO Morrow. "Building on our recent momentum, we are well-positioned to bring unparalleled choice and value to all of our customers under one iconic brand, whether they beam it or stream it."

According to a press statement, at the transaction's closing, AT&T received $7.1 billion in cash ($7.6 billion net of approximately $470 million cash on hand) and transferred approximately $195 million of video business debt. AT&T expects this transaction will help support its debt reduction efforts, with plans to reach a net debt-to-adjusted EBITDA of below 2.5x by year-end 2023.1

Not included in this transaction are WarnerMedia’s HBO Max streaming platform and regional sports networks, both of which are part of the pending WarnerMedia-Discovery transaction; Vrio (AT&T’s Latin American video operations, which are being sold to Grupo Werthein); U-verse network assets; and AT&T’s Sky Mexico investment. DIRECTV will continue to offer HBO Max to subscribers along with any bundled wireless or broadband services and associated customer discounts.

For those who beam it over satellite, DIRECTV service offers live sports in 4K HDR, including NBA games in 4K, and sports programming including the NFL Sunday Ticket show. DIRECTV also empowers customers to watch movies and shows from TVs at home or on mobile devices using the DIRECTV app.

For those who stream it, the newly branded DIRECTV STREAM will become the single brand for video streaming services previously launched by AT&T, excluding HBO Max. Over the next several months, DIRECTV will prominently feature its bold new look across its video services, and new and existing customers will experience several touchpoints with it.

As part of the deal, AT&T satellite, streaming or IP video customers will automatically keep their video service, any bundled wireless, internet or HBO Max services, and associated discounts with no action needed.

The effects of the transaction are reflected in the guidance AT&T provided when it announced its second-quarter 2021 results on July 22, 2021. Learn more about the transaction.

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