AT&T and TPG Capital, the private equity platform of global alternative asset firm TPG, February 25 signed a definitive agreement under which the two parties will establish a new company named DIRECTV that will own and operate AT&T’s U.S. video business unit consisting of the DIRECTV, AT&T TV and U-verse video services, as it was informed by AT&T.
The transaction to separate AT&T’s U.S. video business into New DIRECTV implies an enterprise value for the new company of $16.25 billion.
When the transaction closes, which is expected in the second half of 2021, AT&T expects to receive from New DIRECTV $7.8 billion ($7.6 billion in cash and the assumption from AT&T of $200 million of existing DIRECTV debt).
TPG will contribute $1.8 billion in cash to New DIRECTV in exchange for preferred units and a 30% interest in common units of New DIRECTV.
New DIRECTV has secured $6.2 billion in committed financing from its bank group, $5.8 billion of which is expected to be paid to AT&T in cash plus the assumption from AT&T of $200 million of existing DIRECTV debt.
AT&T will contribute its U.S. video business unit to the new entity in exchange for preferred units as well as a 70% interest in the common units of New DIRECTV.
When the transaction closes, it’s expected that substantially all of the employees who support AT&T’s U.S. video operations today will transition to New DIRECTV and the remainder will remain with AT&T
Since AT&T closed the DIRECTV acquisition in 2015, the business has generated cash flows of more than $4 billion per year, and the company expects this to continue in 2021.
AT&T’s U.S. video unit had approximately 17.2 million subscribers as of the end of 2020. For full-year 2020, the unit had more than $28 billion in revenues, operating income of $1.7 billion, operating income margins of 6%, $4 billion in EBITDA and EBITDA margins of about 14%.3
Among other items not included in New DIRECTV are AT&T’s WarnerMedia HBO Max streaming platform, Vrio (AT&T’s Latin American video operations), AT&T’s regional sports networks, U-verse network assets and AT&T’s Sky Mexico investment.
The transaction is subject to customary closing conditions and to regulatory reviews.
Goldman Sachs & Co. LLC acted as financial advisor to AT&T and Sullivan and Cromwell LLP acted as legal advisor to AT&T. Ropes and Gray provided legal advice to TPG and Credit Suisse acted as lead financial advisor to TPG in connection with the transaction. BofA Securities also acted as financial advisor to TPG.
