AT&T John Stankey said the agreement is in line with the operator’s strategy to focus on core assets such as 5G, fibre and HBO Max. It will reduce debt for AT&T and provide “dedicated management focus” for the pay-TV operations. AT&T bought DirecTV in 2015 for USD 48.5 billion. The company said it has since generated cash flows of over US D4 billion per year and that this should continue into 2021. The deal will not include the WarnerMedia HBO Max streaming platform, AT&T’s Latin American video operations Vrio, AT&T’s regional sports networks, U-verse network assets and AT&T’s Sky Mexico investment.
At completion, all existing AT&T video subscribers will become new DirecTV customers and all existing content deals, including NFL Sunday Ticket on DirecTV, will become of the new company. DirecTV will have a commercial agreement with AT&T and continue to provide bundled pay-TV services for mobile and internet customers. New DirecTV video subscribers will also continue to receive HBO Max. AT&T and New DirectTV will also continue to serve customers through multiple distribution channels, including retail, online, call centers and indirect sellers; and share revenues for ad inventory management and ad sales.
The new company’s board will have two representatives from both AT&T and TPG, with Morrow holding the fifth seat. Most employees will move to New DirecTV, with the rest staying at AT&T. The new company plans to recognise its unionized labour force and will assume and honor all existing collective bargaining agreements.
Financial terms
The deal is expected to close in second half of this year. Under the terms of the agreement, AT&T will receive USD 7.8 billion from New DirecTV, including USD 7.6 billion in cash and the assumption from AT&T of USD 200 million worth of existing DirecTV debt. AT&T will use the proceeds to reduce its debt. TPG will contribute USD 1.8 billion in cash to New DirecTV in exchange for preferred units and its 30 percent stake in the new company.
New DirecTV has secured USD 6.2 billion in committed financing from its bank group, USD 5.8 billion of which will be used to pay AT&T and assume the USD 200 million of agreed debt.
Financial impact on AT&T
The operator does not expect the transaction to have a material impact on its 2021 financial guidance. AT&T sees revenues rising by about 1 percent, adjusted EPS unchanged from the year before, capex of around USD 18 billion and free cash flow at about USD 26 billion, with a full-year total dividend payout ratio in the high 50 percent range. Going forward, the company expects that the restructuring enabled by the deal to improve future EBITDA growth.
AT&T said it continues to maintain a solid cash position and a strong balance sheet. The company ended 2020 with USD 10 billion in cash on hand. In addition to the USD 7.6 billion in cash it will get at transaction close, AT&T has also secured USD 14.7 billion in financing via a term loan credit agreement, the proceeds of which will be available any time before 29 May, and issued USD 6.1 billion of commercial paper in January. The company will continue to look at ways of “monetizing non-core assets” such as its Crunchyroll anime unit, which is pending sale for USD 1.175 billion.
The company added that it has proactively managed its debt portfolio, reducing near-term debt maturities by about USD 33 billion in 2020 and lowering the overall portfolio average rate to 4.1 percent at the end of 2020, down 20 basis points from first-quarter 2020 levels.
