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AT&T, Ready for Your $30 Billion DirecTV Haircut?

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(Bloomberg Opinion) — AT&T Inc. is once again looking to sell its DirecTV unit, a business that has lost billions of dollars in value since the wireless carrier acquired it in 2015. The sooner it waves goodbye, the better. The question is, who wants it?

DirecTV has faded into the background at AT&T, a company now entirely focused on competing in 5G wireless connectivity and online television. Any DirecTV user can attest to how the service has been neglected in recent years, and the business might be forgotten by investors if it weren’t for the headline-grabbing subscriber losses it’s mounted each quarter.

AT&T, which also owns the U-Verse brand, has lost about 6 million traditional pay-TV customers overall in just the last two years. The Covid-19 pandemic is causing cord-cutting to accelerate as consumers look to save money by switching to streaming-video services such as Netflix and AT&T’s own HBO Max. So while AT&T paid $49 billion when it bought DirecTV, it’d be lucky to fetch even half that now. One analyst, John Butler of Bloomberg Intelligence, estimates a potential sale price of just $20 billion.

Some may be wondering, what on earth would any buyer want with a satellite-TV business anyway? The answer is cash. DirecTV still throws off quite a bit of it, which explains why private equity firms including Apollo Global Management Inc. and Platinum Equity are said to be taking a look. Financial suitors want businesses that generate lots of cash because they can support dividends and the debt load needed to take them private — although DirecTV’s ability to do so is certainly diminishing. 

Cash is one reason AT&T has waffled over whether to part with DirecTV; its earnings help the parent company chip away at its own mountain of debt. According to a Los Angeles Times article in January, AT&T said that DirecTV had generated $22 billion of cash flow since 2015. But now that Randall Stephenson, the CEO who bought DirecTV, has retired, and AT&T has a new linear TV product called AT&T TV, it no longer makes sense to hold on to a tired brand. DirecTV also won’t rebound after the pandemic, and given the uncertainty around sports, there’s now a question mark on the value of its NFL Sunday Ticket package.

Satellite TV does continue to serve a crucial demographic: rural America. There, streaming apps often aren’t an option; instead, the choice is between DirecTV and Dish Network Corp. In fact, roughly half of satellite churn is back and forth between DirecTV and Dish, according to a research report last September by Craig Moffett of MoffettNathanson LLC. As they both try to offset subscriber shortfalls and higher programming costs, DirecTV has turned to price hikes and Dish has embraced channel blackouts. This is why Dish has long been considered the most obvious merger partner for DirecTV, an idea that seems to have been deterred only by the regulatory hurdles. So even as AT&T holds formal discussions with private equity suitors, there would seem to be a high likelihood that Dish billionaire Charlie Ergen also joins the fray. The satellite business may be the awkward sibling of the AT&T family, but it’s a piggy bank for Ergen’s desire to launch his own 5G wireless network.

This may be the last chance for DirecTV and Dish to strike a deal. The U.S. Justice Department and Federal Communications Commission’s approval of T-Mobile US Inc.’s purchase of Sprint Corp., which was backed by a court ruling this year, opened the door to other mergers between direct rivals in highly concentrated markets. That lax approach to antitrust may end, though, if Joe Biden defeats Donald Trump for the presidency in November. Representative David Cicilline, a Rhode Island Democrat leading a House investigation into Big Tech’s anticompetitive practices, told Bloomberg News last week that Biden would likely pursue an aggressive antitrust policy.

While a group of state attorneys general were unsuccessful in trying to block T-Mobile’s takeover of Sprint, their efforts signaled that states are willing to step in when they see regulators drop the ball. As AT&T Chief Financial Officer John Stephens noted in an interview in January, contending with antitrust matters now means squaring off against the “three-headed monster” of the DOJ, FCC and states. “Or maybe a 52-headed monster, I should say,” he added.

AT&T may not want to take the risk of that monster coming after it — again. Its $109 billion deal for WarnerMedia (then called Time Warner Inc.) got tied up in a legal battle with the Justice Department for well over a year. New CEO John Stankey, who oversaw that effort, probably doesn’t want a repeat. The company has enough on its plate, with the virus halting productions at WarnerMedia and starving HBO Max of content. Considering AT&T’s $178 billion of net debt, including lease obligations, it’d be prudent to sell DirecTV to whoever offers a combination of best price and best chances of getting a deal done quickly. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

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