AT&T & TPG Close DIRECTV Transaction
AT&T Inc.* (NYSE:T, news, filings) and TPG Capital, the private equity platform of global alternative asset firm TPG, announced today that they have closed their transaction establishing a new company named DIRECTV. This new company will own and operate the DIRECTV, AT&T TV and U-verse video services previously owned and operated by AT&T. DIRECTV had approximately 15.4 million premium video subscribers at the end of the second quarter of 2021.
AT&T contributed 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 DIRECTV. TPG contributed approximately $1.8 billion in cash to DIRECTV in exchange for preferred units and a 30% interest in common units of the new company. The DIRECTV board will include Bill Morrow, CEO of DIRECTV, and the following additional voting board members: Steve McGaw and Thaddeus Arroyo, appointed by AT&T; and David Trujillo and John Flynn, appointed by TPG.
At close, AT&T received $7.1 billion in cash ($7.6 billion net of approximately $470 million cash on hand) and transferred approximately $195 million of video business debt. AT&T expects this transaction will help support its debt reduction efforts, with plans to reach a net debt-to-adjusted EBITDA of below 2.5x by year-end 2023.1
Not included in this transaction are WarnerMedia’s HBO Max streaming platform and regional sports networks, both of which are part of the pending WarnerMedia-Discovery transaction; Vrio (AT&T’s Latin American video operations, which are being sold to Grupo Werthein); U-verse network assets; and AT&T’s Sky Mexico investment. DIRECTV will continue to offer HBO Max to subscribers along with any bundled wireless or broadband services and associated customer discounts.
The effects of this transaction are reflected in the guidance AT&T provided when it announced its second-quarter 2021 results on July 22, 2021. Read more here.
1 Net Debt to Adjusted EBITDA ratios are non-GAAP financial measures that are frequently used by investors and credit rating agencies to provide relevant and useful information. AT&T’s Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters Adjusted EBITDA. Adjusted EBITDA estimates depend on future levels of revenues and expenses which are not reasonably estimable at this time. Accordingly, we cannot provide a reconciliation between Adjusted EBITDA and the most comparable GAAP metric without unreasonable effort.
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