NEW YORK - AT&T Inc. (NYSE: T) and TPG Capital, the private equity platform of global alternative asset firm TPG, announced today that they have signed a definitive agreement under which the two parties will establish a new company named DIRECTV ('New 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.
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.1 Under the terms of the transaction, New DIRECTV will be jointly governed by a board with two representatives from each of AT&T and TPG, as well as a fifth seat for the CEO, which at closing will be Bill Morrow, CEO of AT&T's U.S. video unit. Following the close of the transaction, AT&T will own 70% of the common equity and TPG will own 30%.
AT&T and TPG believe the new structure will provide greater focus, flexibility and resources to best position the business to succeed in the long term and deliver on its commitment to customers, employees and shareholders. New DIRECTV will continue to offer a competitive video service with best-in-class content.
'This agreement aligns with our investment and operational focus on connectivity and content, and the strategic businesses that are key to growing our customer relationships across 5G wireless, fiber and HBO Max. And it supports our deliberate capital allocation commitment to invest in growth areas, sustain the dividend at current levels, focus on debt reduction and restructure or monetize non-core assets,' said AT&T CEO John Stankey. 'As the pay-TV industry continues to evolve, forming a new entity with TPG to operate the U.S. video business separately provides the flexibility and dedicated management focus needed to continue meeting the needs of a high-quality customer base and managing the business for profitability. TPG is the right partner for this transaction and creating a new entity is the right way to structure and manage the video business for optimum value creation.'
'Video remains a core service for tens of millions of households. Since its launch in 1994, DIRECTV has continually evolved its product, content and service to provide customers an industry-leading video offering. As video consumption habits evolve, the new DIRECTV will continue investing in its offering to provide value to its customers, including through next-generation streaming pay-TV services,' said David Trujillo, Partner at TPG. 'TPG looks forward to partnering with AT&T and new DIRECTV leadership to bring the right focus, attention and execution in support of new DIRECTV's position as a competitive video provider for the benefit of its customers and employees.'
Transaction terms
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). AT&T expects to use the proceeds from this transaction to reduce AT&T 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.
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.
New DIRECTV's CEO Morrow joined AT&T in 2019 to oversee the company's operational transformation efforts. Morrow's career includes successfully leading operational transformations of telecom and utility companies, including serving as CEO of Vodafone Hutchison Australia, Vodafone Europe and Pacific Gas & Electric. Morrow and a management team approved by AT&T and TPG will oversee the day-to-day operations of New DIRECTV, and Morrow will report to the New DIRECTV board.
AT&T-TPG
For more than a decade, TPG has been engaged in the evolving landscape of content creation, distribution and consumption, giving it a unique window into consumer preferences that will inform efforts to continue to improve New DIRECTV's video service to better meet customer needs. The firm has a long history of partnering with corporate owners to invest in and carve-out non-core businesses, providing the capital and operational expertise to uncover new value and execute on long-term growth objectives.
'We look forward to working with AT&T, Bill and the entire talented team at the new DIRECTV to create a seamless customer experience through the separation of the company,' John Flynn, Principal at TPG said. 'We are particularly excited by the opportunity to grow new DIRECTV's streaming video service, leveraging the company's leading pay-TV platform, talented labor force and large subscriber base to transition it into a leading next-generation video provider with best-in-class content and customer experience.'
Coupled with extensive experience in the video and content business, TPG is committed to ensuring that New DIRECTV's valuable airwaves continue to serve a public benefit by continuing to provide high-quality satellite video service to consumers across the country.
After close, New DIRECTV will have a commercial agreement with AT&T to continue to offer bundled pay-TV service for AT&T's wireless and internet customers. Additionally, AT&T and New DIRECTV will have commercial agreements in place that will give New DIRECTV video subscribers continued access to HBO Max; allow both companies 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.
Background on U.S. video business
AT&T has seen improvement in its domestic video business in recent quarters. It hit its peak level of subscriber losses in 2019, and through the fourth quarter of 2020, premium video net losses had improved sequentially for five straight quarters.2 AT&T's video subscriber churn has also continued to improve, and premium TV ARPU increased 5.1% in the fourth quarter of 2020.
In 2020, AT&T's video services advanced from #3 to #1 in J.D. Power's 2020 Residential Television Customer Satisfaction Study. This was driven in part by solid performance from AT&T TV - the company's streaming pay-TV platform which launched in early 2020. AT&T TV offers the best of live and on-demand content and has lower subscriber acquisition costs driven by customer self-installation.
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
About TPG
TPG is a leading global alternative asset firm founded in 1992 with approximately $85 billion of assets under management and offices in Austin, Beijing, Fort Worth, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, San Francisco, Seoul, Singapore, and Washington, DC. TPG's investment platforms are across a wide range of asset classes, including private equity, growth equity, real estate, and public equity. TPG aims to build dynamic products and options for its investors while also instituting discipline and operational excellence across the investment strategy and performance of its portfolio.
About AT&T
AT&T Inc. (NYSE:T) is a diversified, global leader in telecommunications, media and entertainment, and technology. Consumers and businesses have more than 225 million monthly subscriptions to our services. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across TV, mobile and broadband. Plus, it serves high-speed, highly secure connectivity and smart solutions to nearly 3 million business customers. WarnerMedia is a leading media and entertainment company that creates and distributes premium and popular content to global audiences through its consumer brands, including: HBO, HBO Max, Warner Bros., TNT, TBS, truTV, CNN, DC Entertainment, New Line, Cartoon Network, Adult Swim and Turner Classic Movies. Xandr, now part of WarnerMedia, provides marketers with innovative and relevant advertising solutions for consumers around premium video content and digital advertising through its platform. AT&T Latin America provides pay-TV services across 10 countries and territories in Latin America and the Caribbean and wireless services to consumers and businesses in Mexico.
AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information is available at about.att.com. 2021 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.
This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company's website at https://investors.att.com.
Contact:
Fletcher Cook
Tel: 214-912-8541
Email: fletcher.cook@att.com
AT&T INC. 
