By Drew FitzGerald, Cara Lombardo and Miriam Gottfried
AT&T Inc. is taking a contemporary take a look at its DirecTV enterprise, in accordance with individuals accustomed to the matter, exploring a deal for a service wounded by cord-cutting.
The telecom and media large and its advisers at Goldman Sachs Group Inc. have been in talks with private-equity suitors in regards to the satellite tv for pc TV unit, a few of the individuals stated. Potential bidders embody Apollo International Administration Inc., which had expressed curiosity final yr, and Platinum Fairness, these individuals stated.
The method is at an early stage, and it is not clear what kind any deal would take — or if there can be one in any respect. It’s potential a few of the suitors will group up or submit joint proposals. Different buyers that have been approached have determined to not pursue bids, a few of the individuals stated.
AT&T executives have beforehand explored parting with DirecTV belongings, together with a possible spinoff or combining belongings with rival Dish Community Corp., however obstacles, together with antitrust issues, have gotten in the way in which.
A non-public-equity purchaser might keep away from these regulatory issues. AT&T is trying to promote simply over 50% of the asset, which might enable the telecom large to take a fast-shrinking enterprise off its books whereas nonetheless having fun with the advantages of a still-large distribution community, a few of the individuals stated.
Any deal for the satellite tv for pc TV service could be sizable however doubtless a far cry from the $49 billion AT&T paid for it in 2015. The pay-TV unit has misplaced thousands and thousands of subscribers lately as viewers change to on-demand leisure providers like Netflix Inc. A deal might worth the enterprise beneath $20 billion, a few of the individuals stated.
If a deal is reached, it could begin to streamline an organization that used a collection of acquisitions within the final decade to shift from a phone-service supplier right into a media conglomerate. It additionally left the enlarged AT&T with a big debt load.
The acquisition of DirecTV made AT&T the largest U.S. pay-TV supplier, a title it later ceded to Comcast Corp. as satellite tv for pc clients canceled. In 2018, a roughly $80 billion takeover of Time Warner added HBO, the Warner Bros. movie studio and cable channels like CNN to AT&T’s portfolio.
The most recent deal talks have been spurred by Chief Government John Stankey, an AT&T veteran who took over in July from longtime boss Randall Stephenson, who stays chairman. Mr. Stankey has stated the corporate ought to sharpen its concentrate on core connectivity providers.
Cellphone service and wired broadband stay AT&T’s largest revenue engines and account for greater than half of the corporate’s over $180 billion of annual income. These telecom models have performed a key position in stabilizing general earnings this yr because the coronavirus pandemic drained income in its satellite tv for pc arm and in its WarnerMedia division.
AT&T shares have missed out on the inventory market’s latest rally. The shares are down greater than 20% year-to-date, in contrast with a roughly eight% advance within the S&P 500 index.
The talks aren’t sure to yield a sale, and the construction of any deal might end in AT&T retaining a stake in DirecTV. The Dallas firm has examined market curiosity in a number of items of its empire solely to determine to maintain the models in-house. The corporate just lately paused a sale course of for its Warner Bros. Interactive Leisure videogame unit, in accordance with an individual accustomed to the matter.
Shedding a majority of the shrinking pay-TV enterprise might supply a money enhance, whereas additionally triggering a pricey write-down for AT&T. Twine-cutting has triggered probably the most injury at AT&T, which misplaced 7 million U.S. video connections over the previous two years. AT&T does not escape income or earnings for DirecTV.
Executives say the customer-loss development is exacerbated by the pandemic. Many bars, accommodations and airways that use satellite tv for pc feeds are working at diminished capability — if in any respect — sapping extra of the unit’s income.
The corporate might nonetheless retain pay-TV clients if it decides to drop the satellite tv for pc infrastructure. Executives earlier this yr launched a service known as AT&T TV, which delivers DirecTV channels over the web by a cable field that clients set up themselves.
“To the extent that we’re in a position to get these clients engaged with us on these platforms, then we’re in a very good place, and we’re OK with that,” Mr. Stankey stated in a July interview on CNBC. “And if that takes us down a path that claims satellite tv for pc supply is much less essential, so be it.”
AT&T additionally has joined the streaming fray by launching HBO Max in Might. About four.1 million individuals had activated the brand new service by the top of June. Earlier this month, WarnerMedia’s new boss ousted a number of executives, together with the top of HBO Max.
Apollo deal makers have lengthy eyed DirecTV as a possible goal. The agency final yr pitched a three-way deal that may spin a few of the division’s exhausting belongings into a brand new holding firm managed by Apollo, DirecTV and rival Dish, in accordance with paperwork reviewed by The Wall Road Journal.
Whether or not Apollo’s new proposal includes an identical construction could not be realized.
Dish Chairman Charlie Ergen has repeatedly known as the union of the nation’s two main satellite-TV suppliers “inevitable,” however AT&T executives have highlighted hurdles that may deter such a deal. Antitrust enforcers might block a deal to protect competitors out there for dwell TV channels in rural areas, the place satellites are sometimes the one choice out there.
Activist investor Elliott Administration Corp. waged a public marketing campaign final yr difficult AT&T’s shift towards media and calling on AT&T to think about asset gross sales. The 2 sides in the end reached a truce, with AT&T promising to conduct a strategic assessment of its portfolio and purchase again extra inventory. Elliott later decreased its stake within the firm.
AT&T additionally pledged to proceed trimming the debt it amassed from buying DirecTV and Time Warner over the previous 5 years. The corporate stated it had about $152 billion of internet debt on the finish of June after refinancing at “enticing charges.”
Write to Drew FitzGerald at firstname.lastname@example.org, Cara Lombardo at email@example.com and Miriam Gottfried at Miriam.Gottfried@wsj.com