A long-running storyline over the past year has been AT&T’s attempts to find a buyer for DirecTV, which they purchased for $49 billion back in 2015. In May, we discussed reports on how AT&T shareholders were putting the company under pressure to sell the DirecTV unit, and in August, we analyzed reports that they might sell the whole unit for only $20 billion. Well, it now appears that they’re close to a sale, but for a minority stake rather than a controlling interest. Here’s more on that from Krystal Hu and Joshua Franklin of Reuters, in a piece first posted Friday:
Private equity firm TPG has entered into exclusive talks to acquire a minority stake in AT&T Inc’s satellite TV division, DirecTV, in a deal that would allow the U.S. wireless carrier to trim its net debt of close to $150 billion, people familiar with the matter said on Friday.
The exact price TPG is willing to pay could not be learned, but sources said the deal could value DirecTV at more than $15 billion. Were the negotiations to conclude successfully, a deal could be announced in the coming weeks, added the sources, who requested anonymity because the matter is confidential.
…The advanced talks with TPG are the culmination of an auction that AT&T ran for DirecTV for several months. The deal would crystallize a financial hit for AT&T, which valued DirecTV at about $67 billion including debt when it agreed to acquire it in 2014.
So, yes, that’s an unfortunate downturn from what DTV was valued at when AT&T bought it. But the cable and satellite landscape has changed significantly since then. And the sale of a minority stake rather than a controlling stake might actually work out for AT&T in the long term if there’s some rebound for DirecTV. And that’s not necessarily out of the question; it’s worth mentioning that their main satellite competitor, Dish, has become embroiled in so many carriage disputes that they’re hardly a reliable option, and that their CEO has called a merger with DTV “inevitable“, so there are some potential gains for DTV if that happens.
In the meantime, though, this feels like something that could work out for both parties. The sale of a minority stake in DTV gives AT&T some cash, which they can use to service their significant debt (which has grown dramatically in recent years from purchasing DTV and then Time Warner), and investors reacted favorably to this report, boosting AT&T shares by close to one percent Friday. But also, selling only a minority stake means that the DTV purchase might not wind up being quite as disastrous for AT&T in the long term.
If DTV’s valuation does rebound, AT&T will still be in a position to benefit from that if they’re not selling majority control. Meanwhile, TPG takes on some risk of a further DTV value cratering. However, they also gain some potential upside if the DTV situation improves, and they’re taking on less risk from buying a minority share than they would be from taking control of the company. No control does mean that they’re hoping AT&T makes good decisions about DTV rather than making those decisions themselves, though.
It’s important to note that this isn’t a done deal yet, and that “exclusive talks” have frequently not led to an actual transaction. But these reported talks do seem to carry some benefits for both sides. We’ll see if they come to fruition.