US telecommunications giant AT&T (NYSE:T) is reportedly selling a minority stake in the pay-TV business spanning AT&T Now, DirecTV and U-Verse. The company is in discussions with various private equity-companies that include Apollo Management to finalize this complicated deal that will take legacy assets off AT&T’s balance sheet.
DirecTV valued at $15 billion
According to sources, the private-equity firms will submit final bids to acquire a stake in the pay-TV business in December. The transaction will value DirecTV at around $15 billion, significantly less than the $67 billion the company paid for the unit when it acquired the business five years ago with debt. However, the sale will not include DirectTV’s Latin America operations.
Sources indicate that the carrier will retain majority ownership of the unit and control the U-verse infrastructure, including fiber and plants. On the other hand, the buyer will control the distribution of Pay TV operations and consolidate the unit on its operations. The transaction will include 30%-49% for the combined pay-TV distribution operations. At the end of Q3 2020, AT&T had around 17 million legacy TV subscribers, which is a 16% drop from last year, while AT&T Now customers dropped 40% to around 683,000.
AT&T wants to ease debt
The carrier has been under pressure to divest assets following the acquisition of DirecTV and then to spend around $100 billion on Time Warner. AT&T has focused on reducing debt levels and turned its video strategy to concentrate on streaming offering HBO Max. The transaction structure will give the company cash to pay down the debt it took to make the acquisitions while maintaining equity check at considerably low levels for a fund like Apollo management to execute the deal. In recent years the satellite TV provider has shed millions of subscribers that have shifted to cable providers offering high-speed broadband or did away with conventional bundled TV.
MoffetNathanson telecommunications analyst Craig Moffet said that the carrier is trying something hard as they strife to manage a portfolio of declining businesses by cutting costs.