AT&T considers selling significant minority stake in pay-TV business

AT&T is in discussions with private-equity firms, including Apollo Management, to sell a significant minority stake in its DirecTV, AT&T Now and U-Verse pay-TV businesses in a complicated transaction that would shift legacy assets off the wireless carrier’s balance sheet, according to people familiar with the matter.

Under the terms of the proposed deal, AT&T would retain majority economic ownership of the businesses, and would maintain ownership of U-verse infrastructure, including plants and fiber. The buyer would control the pay-TV distribution operations and consolidate the business on its books. The deal could include 30% to 49% of the combined pay-TV distribution businesses, said the people, who asked not to be named because the discussions are private.

Final bids are due in early December, the people said. While valuations haven’t been determined, a deal may value DirecTV at less than $15 billion including debt, two of the people said. AT&T acquired DirecTV in 2015 for $67 billion with debt. A deal will not include DirecTV’s Latin American business, the people said.

AT&T ended the third quarter with about 17 million legacy TV subscribers (DirecTV and U-verse combined), down more than 16% from a year earlier. AT&T Now customers fell 40% to 683,000.

AT&T has been under pressure from investors, including activist hedge fund Elliott Management, to divest assets after acquiring DirecTV and then spending more than $100 billion on Time Warner. The proposed deal structure would give AT&T cash to pay down debt while keeping the equity check low enough for a fund, such as Apollo, to execute the deal itself, two of the people said.

AT&T has pivoted away from legacy pay-TV since acquiring DirecTV, focusing instead on adding HBO Max streaming subscribers. The satellite TV provider has hemorrhaged millions of subscribers in recent years as customers have fled to cable companies that also offer high-speed broadband or cancelled traditional bundled TV altogether.

“AT&T is trying to do something very hard,” Craig Moffett, a telecommunications analyst at MoffettNathanson, wrote in a note to clients after AT&T’s third quarter earnings. “They have to manage a portfolio of declining businesses by slashing their costs, while still not hurting their cash generation prospects too badly, while simultaneously finding a way to sustain a dividend, pay down debt enough to placate rating agencies, and, all the while, invest in the few growth areas they’ve got that are worthy (wireless, HBO Max, and fiber-based broadband).”

Spokespeople for AT&T and Apollo declined to comment.

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