AT&T Sheds DirecTV, Sort Of

AT&T Inc. (NYSE: T | T Price Prediction) on Thursday announced that it has signed a definitive agreement with private equity firm TPG Capital to establish a new company that will own and operate AT&T’s U.S. video business. Included in the new firm are satellite provider DirecTV, AT&T TV and U-verse internet service.

According to the announcement, the new company has an implied enterprise value of $16.25 billion. AT&T expects to receive $7.6 billion in cash and $200 million in assumed debt when the deal is completed, now projected to be in the second half of this year. AT&T said it plans to use the funds to pay down debt.

If there’s one thing AT&T has, it’s plenty of debt. At the end of December, the company reported long-term debt of $153.8 billion. About $48 billion of that debt originated with the 2015 acquisition of DirecTV. Another $85 billion originated with the acquisition of Time Warner. Most of the rest likely went to pay for 5G spectrum.

Earlier this month, for example, AT&T received a $14.7 billion loan from Bank of America to purchase more spectrum. The company ultimately ended up spending $23.4 billion in the recent FCC auction of C-band spectrum. Rival Verizon spent nearly double that amount ($45.4 billion), while T-Mobile coughed up just $9.3 billion because it had already amassed some 250 MHz of C-band spectrum with its acquisition of Sprint.

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AT&T will own a 70% interest in the common units of “new DirecTV” and TPG will own the rest. The new company will have a commercial agreement with AT&T to continue offering pay-TV services and HBO MAX streaming services to AT&T’s wireless and internet customers.

DirecTV has lost some 9 million customers since its acquisition by AT&T. The company took a $15.5 billion impairment charge in the fourth quarter to account for the lower value of the DirecTV business.

The announcement sent AT&T shares down about 2.6% on Thursday to $28.63, in a 52-week range of $26.08 to $38.22. The consensus price target on the stock is $29.87, and AT&T pays a dividend yield of 7.08%.

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