AT&T has reportedly been approached by private equity firm Apollo about a potential deal to spin off DirecTV and combine it with Dish Network.
According to Fox Business’ Charlie Gasparino, Apollo has proposed creating a new company and having AT&T offload DirectTV to the new company. Then, Dish Network would sell itself to the new company. The entire deal would be financed by Apollo, and AT&T would maintain control of this new company as a majority owner.
AT&T COO John Stankey has said that DirecTV is a crucial piece of his company’s video strategy, and that it’s not for sale. But the company reportedly hasn’t entirely ruled out Apollo’s plan.
“From inside the company, they’re saying that it’s not quite on the table. It’s not a firm no, but it’s not quite on the table and they don’t rule out doing something like this,” Gasparino said.
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Recently, there have been conflicting reports about what AT&T plans to do with DirecTV, its struggling satellite television operation. According to the Wall Street Journal, the company is exploring a divestiture. It has looked at potentially spinning off DirecTV into a separate public company, or potentially selling the company’s assets to rival satellite distributor Dish Network.
But, according to CNBC’s David Faber, AT&T is not actively considering a sale of DirecTV.
One of the big questions around any potential combination of DirecTV and Dish is whether federal regulators would allow it. In 2002, federal regulators shot down a potential merger between Dish Network (then called EchoStar Communications) and DirecTV on the grounds that it would create a satellite monopoly in rural areas of the country where cable wasn’t available. But, MoffettNathanson analyst Craig Moffett argues that a lot has changed since then.
“Satellite TV was growing by leaps and bounds at the time. Now it is in free fall. That alone may be enough to settle the debate; sure, two would be better than one, but both are credible bankruptcy risks on their own. Heck, they’d be a credible bankruptcy risk even together. Simply preserving an option for rural America at all would be the argument. And it would be a reasonably persuasive one,” wrote Moffett in a research note.
Both DirecTV and Dish Network have seen their subscriber bases erode in recent years. AT&T is predicting DirecTV could lose more than one million subscribers in the third quarter, which Moffett said would have a big negative impact on EDITDA. Coupled with Dish’s high leverage against EBITDA, MoffettNathanson said a potential combination of the two satellite providers would have a hard time finding financing. But, if the new Fox Business report is true, Apollo seems willing to take a chance on the deal.