Enlarge / AT&T’s logo at its corporate headquarters on March 13, 2020 in Dallas, Texas.

Nearly six years after buying DirecTV for $48.5 billion, AT&T today announced a deal to sell a minority stake in the business unit and spin it out into a new subsidiary.

AT&T said its deal with private equity firm TPG Capital values the TV business at $16.25 billion. A press release said that AT&T and TPG « will establish a new company named DirecTV that will own and operate AT&T’s US video business unit consisting of the DirecTV, AT&T TV, and U-verse video services. »

AT&T will own 70 percent of the spun-off DirecTV company’s common equity while TPG will own 30 percent. DirecTV in its new form « 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 US video unit, » the announcement said.

AT&T acknowledged that its DirecTV purchase didn’t work out as planned.

« With our acquisition of DirecTV, we invested approximately $60 billion in the US video business, » AT&T said in materials distributed to reporters. « It’s fair to say that some aspects of the transaction have not played out as we had planned, such as pay TV households in the US declining at a faster pace across the industry than anticipated when we announced the deal back in 2014. In fact, we took a $15.5 billion impairment on the business in 4Q20. »

Focus on 5G, fiber, and HBO Max

Separating DirecTV into a new unit will help AT&T focus on its key « strategic » areas of 5G mobile service, fiber Internet, and HBO Max, AT&T said.

« As the pay-TV industry continues to evolve, forming a new entity with TPG to operate the US 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, » AT&T CEO John Stankey said. « 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. »

The companies said they expect to close their transaction in the second half of 2021 and that it « is subject to customary closing conditions and to regulatory reviews. » AT&T said it expects to receive $7.6 billion in cash from the partial sale and that it will use the money to reduce its debt.

8 million TV customers fled AT&T

AT&T has lost over 8 million customers since early 2017 from its Premium TV services, which include DirecTV satellite, U-verse wireline video, and the newer AT&T TV online service. Total customers in that category decreased from over 25 million in early 2017 to 16.5 million at the end of 2020.

« 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, » today’s announcement said.

DirecTV’s deal with NFL Sunday Ticket apparently will not be disrupted, as AT&T said it will continue to « fund NFL Sunday Ticket for 2021 and 2022 (up to a $2.5B cumulative cap). »

Current video customers should not expect major changes, AT&T said.

« Existing AT&T video customers will become DirecTV customers at close and will be able to keep their video service and any bundled wireless or broadband services as well as associated discounts, » AT&T said. « 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 DirecTV’s video services. »

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