Why AT&T’s $67 billion DirecTV acquisition is now worth only $16 billion

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After a tumultuous six years in the satellite TV business, AT&T is getting out.

The telecom giant, which paid $67.1 billion for satellite broadcaster DirecTV in 2015, said on Thursday that it would spin off the unit with backing from private equity firm TPG Capital in a deal worth just $16.3 billion. Both figures include debt. The deal is expected to be completed in the second half of 2021.

The move was widely rumored last year, and AT&T’s stock price, which has declined 25% over the past 12 months, was up less than 1% in after-hours trading on Thursday.

AT&T may need TPG’s cash to help pay for airwave licenses it just won in a federal auction. AT&T’s winning bids in the sale of spectrum rights suitable for offering 5G wireless service totaled $23 billion plus another estimated $3 billion it will have to pay to help move services that currently use the airwaves. Under the terms of Thursday’s deal, TPG will invest $1.8 billion in the newly separated DirecTV unit, which in turn will borrow money on its own to pay AT&T $7.6 billion in cash.

CEO John Stankey, who took over the top job at AT&T in July, said in a statement that the subscription TV business didn’t fit with the company’s “focus on connectivity and content,” which prioritizes growing its 5G wireless, fiber optic connectivity, and HBO Max streaming services. “We certainly didn’t expect this outcome when we closed the DirecTV acquisition in 2015,” Stankey added on a call with analysts on Thursday.

Accounting for just how much AT&T lost on the 2015 deal is complicated. The new DirecTV will not include some assets that were part of the original deal, such as regional cable sports channels and DirecTV’s Latin America business.

AT&T’s prior CEO, Randall Stephenson, thought buying DirecTV would bolster the company’s effort to offer subscription cable-TV service and provide healthy cash flow to cover other commitments. But the sale came just as cord cutting was heating up, and DirecTV has lost millions of customers over the past six years. Stephenson’s even bigger diversification deal, paying $109 billion including debt for Time Warner in 2018, remains on AT&T’s books.

At the end of 2015, AT&T reported 19.8 million DirecTV subscribers and 5.6 million cable TV subscribers under its U-verse brand for a total of 25.4 million. In a regulatory filing on Thursday, AT&T disclosed a combined total of just 16.5 million cable and satellite TV subscribers at the end of 2020. AT&T said it also had about 650,000 TV subscribers who get service over the Internet.

TPG executives said a major draw was the online TV service, which was initially called DirecTV Now before being renamed as AT&T TV Now.

“We are particularly excited by the opportunity to grow new DirecTV’s streaming video service,” John Flynn, a principal at TPG, said in a statement. AT&T agreed to continue offering DirecTV’s service to its wireless phone and home Internet customers.

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