AT&T completes spin-off of DirecTV after 6 years of complete failure and ineptitude

A man with an umbrella passing a building with the AT&T logo.

AT&T has completed its spin-off from DirecTV after six years of mismanagement in which nearly 10 million customers abandoned the company’s pay-TV services.

AT&T bought DirecTV for $ 49 billion ($ 67 billion including debt) in July 2015 despite the fact that DirecTV and other traditional television services were already available. losing subscribers versus online streaming competition. Customer losses were inevitable, but DirecTV’s losses under AT & T’s ownership were far beyond that experienced by other major television providers.

AT&T revealed the spin-off plan in February and announced the completion of the deal yesterday. AT&T partnered with private equity firm TPG to create a new company called DirecTV, which “will own and operate DirecTV, AT&T TV and U-verse video services that were previously owned and operated by AT&T,” according to the announcement.

AT&T will no longer run DirecTV, perhaps allowing it to succeed with better management. But AT&T will own 70 percent of the shares in the new company, and TPG will own the other 30 percent. AT&T will receive $ 7.1 billion in cash to help pay off its debt, which consists of $ 160.7 billion in long-term debt and $ 19.5 billion of debt due within one year. TPG paid $ 1.8 billion for its 30 percent stake.

The massive losses of AT&T customers

In a period of just over four years, AT&T lost more than 9.5 million customers from its Premium TV services division, which includes DirecTV satellite, U-verse cable video and AT&T TV’s new online service. The category decreased from more than 25 million subscribers in the first quarter of 2017 15.4 million in mid-2021. AT&T continually raised prices and eliminated promotional offers as the company sought a higher average revenue per customer, but fell from first place to third in total TV subscribers.

DirecTV’s value declined rapidly under AT&T management, as the company reported an impairment charge of $ 15.5 billion in January 2021. AT&T last month. saying The DirecTV / TPG deal will reduce AT & T’s expected revenue for the remainder of 2021 by $ 9 billion. The DirecTV deal will also reduce AT & T’s expected EBITDA (earnings before interest, taxes, depreciation and amortization) by $ 1 billion.

AT&T also downloads Time Warner

AT&T is spinning off WarnerMedia, as previously reported, admitting failure in its other giant merger. AT&T bought Time Warner for $ 85 billion ($ 109 billion including debt) in 2018 and now has a pending deal to combine the assets of WarnerMedia and Discovery into an “independent global entertainment company.” AT&T expects to receive $ 43 billion from the all-stock transaction while giving up ownership in the media division. AT&T shareholders will receive shares in 71 percent of the new media company, while Discovery shareholders would own the other 29 percent. That deal is expected to close in mid-2022.

AT&T noted yesterday that the DirecTV transaction does not include “WarnerMedia’s HBO Max streaming platform and regional sports networks, which are part of the pending WarnerMedia-Discovery transaction; Vrio (AT & T’s video operations in Latin America, which are are selling to the Werthein Group); U-verse network assets; and AT & T’s investment in Sky Mexico. DirecTV will continue to offer HBO Max to subscribers along with any included broadband or wireless services and associated customer discounts. “

DirecTV and AT&T will separately focus on strengths

In its first ad After the spin-off, independent company DirecTV said the new operating structure will perform better than the one managed by AT&T. “This is a watershed moment for DirecTV as we return to a singular focus on delivering a stellar video experience,” said DirecTV CEO Bill Morrow. (Morrow’s LinkedIn profile says he is “known for his global expertise in leading complex change and capital-intensive startups”).

AT & T’s TV streaming service will be renamed DirecTV Stream. Existing customers don’t have to make any changes to their broadcast or satellite plans if they don’t want to. “It is important to note that as part of the deal, AT&T satellite, broadcast, or IP video customers will automatically maintain their video service, any included wireless, Internet, or HBO Max services and associated discounts with no action required. “DirecTV said. .

After the WarnerMedia spin-off, AT&T CEO John Stankey will have significantly reshaped the company he took over from former CEO Randall Stephenson, who led both major mergers in an effort to turn AT&T into a media giant. Stankey has saying the telecommunications company will return to its core area of ‚Äč‚Äčexpertise, becoming “one of the best-capitalized broadband companies, focused on investing in 5G and fiber to meet substantial long-term demand for connectivity.”

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