AT&T is reportedly under pressure again to sell off its DirecTV business as the satellite TV industry continues to rapidly lose customers.
In the first quarter, AT&T lost nearly 900,000 premium video subscribers due to continued declines at DirecTV. Dish Network lost 132,000 satellite TV subscribers in the same quarter. Amid the continued pressure and with 5G network builds taking precedence for both AT&T and Dish, a previous proposal may be regaining traction.
Fox Business’ Charlie Gasparino cited bankers who predicted AT&T will need to sell off DirecTV soon to help alleviate concerns over high debt loads and the sagging satellite TV industry. He said it’s doubtful that AT&T will get what it paid for DirecTV, which was acquired in 2015 for $49 billion, and that bankers believe the company will have to settle for something like the spinoff agreement with Dish Network that was proposed last year.
Apollo Management reportedly suggested creating a new company and having AT&T offload DirectTV to the new company. Then, Dish Network would sell its satellite business to the new company.
Gasparino said this week that a deal like that could be proposed now and it would mean a firm like Apollo would take on the debt load and keep the combined satellite business private so it could get out from under public investor scrutiny.
AT&T has in the past insisted that DirecTV is not for sale but Dish Network Chairman Charlie Ergen has seemingly accepted that Dish and DirecTV need to join forces to survive.
“It’s inevitable that those two should go together because the growth in TV is not coming from linear satellite TV providers,” said Ergen during Dish’s earnings call in February. “You can’t swim upstream against a real tide of over-the-top players.”
UBS analyst John Hodulik said his firm would not be surprised if AT&T explores its options for DirecTV.
“While DBS assets make up just 10% of AT&T’s profits, it still weighs on its growth profile and multiple,” he wrote in a research note.
Hodulik said a deal to deconsolidate and merge DirecTV with Dish would positively impact AT&T’s leverage and topline growth while adding substantial tax benefits. He also said that, assuming an approximate 5% reduction in the combined company's cash operating cost, a merger could add up to $1.5 billion to $2.5 billion in annual synergies thanks to lower programming costs, procurement, distribution and other factors.
UBS suggested that the current regulatory environment could be more welcoming to a DirecTV-Dish deal given how many traditional MVPDs are de-emphasizing video services and how virtual MVPDs are continuing to grow their share of the overall pay TV market.