• by Karlene Lukovitz  @KLmarketdaily, November 5, 2020

AT&T has been talking with Apollo Management and other private equity firms about possibly selling significant minority stakes in AT&T Now and U-verse, as well as DirecTV, according to CNBC sources.

AT&T has long been expected to move to sell DirecTV. In August, the Wall Street Journal reported that AT&T was exploring such a sale with Apollo and other PE firms, with a value possibly as low as $20 billion. And last month, the New York Post claimed that AT&T was talking with the PE firms about a “fire sale” of DirecTV for roughly $15.75 billion.

But this latest report about a potential packaged sale of its stakes in the three pay-TV platforms is a new twist.

Final bids are due in early December, and the DirecTV satellite TV business — acquired by AT&T in 2015 for $48.5 billion in equity value, or $67 billion when debt is included — could be valued at under $15 billion, according to CNBC’s sources.

The proposed deal is said to call for AT&T to retain majority economic ownership of the businesses and own U-verse’s infrastructure, with the buyer controlling the pay-TV distribution operations. The deal could include 30% to 49% of the combined pay-TV distribution businesses.

AT&T and Apollo declined to comment on the report.

As of the end of the second quarter, Leichtman Research Group estimated that the DirecTV satellite service had 14.29 million subscribers (down 846,000 year-over-year) and U-verse had 3.4 million (down 40,000).

In Q3, DirecTV and U-verse had combined subscribers totaling about 17 million, down 16% year-over-year, while AT&T Now subscribers declined 40% year-over-year, to 683,000 (which was also down from 720,000 in Q2 2020).

In 2019, AT&T lost more than four million satellite, wire-line and linear streaming TV services, with most of the losses at DirecTV.

AT&T is shifting focus toward streaming, through its new HBO Max service.

But as a result of its $84.5 billion acquisition of Time Warner in 2018, as well as the DirecTV and other acquisitions, the conglomerate has an estimated $196 billion in debt.

In October 2019, in response to heavy pressure from activist investor Elliott Management and in light of its need for cash to support its streaming push, AT&T announced new financial revenue and profit targets for each of the next three years.

The company committed to paying off the remaining debt from the Time Warner acquisition during that timeframe. It also committed to reviewing its portfolio for businesses that might make sense to sell or spin off, implementing regular stock buybacks, and making no major acquisitions. 

The pay-TV packaged deal now reportedly under discussion could help bring down the debt and support the company’s strategic direction shift.