AT&T CFO John Stephens broke down some of the long-term financial benefits his company could see from its recent deal to spinoff its linear video businesses.
Last month, AT&T announced a deal TPG Capital to establish a new company named DirecTV that will own and operate DirecTV, AT&T TV, and U-verse. The deal implies an enterprise value of $16.25 billion for the new company, of which AT&T will own 70% of the common equity.
AT&T will receive about $7.8 billion up front after the transaction closes later this year. After that, the company starts sharing the DirecTV, AT&T TV and U-verse video business on a 70-30 basis with TPG. But Stephens said if there is an opportunity to improve the operations business, to take AT&T TV to further level, or to further manage costs, AT&T will benefit from that because we still have 70% ownership.
“And quite frankly, they’re going to be a big business partner in the sense that they’re still one of our largest content buyers for TNT, TBS and CNN,” he said today at a Deutsche Bank investor conference.
Not only does AT&T have a 70% economics interest going forward, but the company will also provide a transition services arrangement to TPG. AT&T will also still be able to bundle video products with its broadband and wireless services, Stephens said.
UBS analyst John Hodulik pointed out last month that AT&T’s remaining economic interest in DirecTV means the company stands to gain from any potential satellite industry consolidation.
“This includes potential satellite video consolidation, which we have long believed is inevitable. While likely not an easy process, the video market has changed significantly since the FCC/DoJ blocked the [DirecTV]/ EchoStar merger in 2002, in our view suggesting a path to potential regulatory approval,” he wrote in a research note.