EXCLUSIVE: Private equity proposal for AT&T spin-off of DirecTV could give Apollo sliver of telecom company
FOX Business' Charlie Gasparino discusses the stakeholders involved in a possible DirectTV-Dish spin-off.
Private equity powerhouse Apollo Global Management, working with an outside banker, is pitching AT&T, Inc. a deal that would allow the telecom conglomerate to offload some of the risk of its troubled DirecTV unit while still maintaining control of the satellite service provider, FOX Business has learned.
The proposed deal structure would essentially fold Charlie Ergen’s Dish Network Corporation into a new company that would include DirecTV and be controlled by AT&T these people say. Apollo would provide financing for the transaction and hold a minority equity stake along with Dish, the people add.
If the deal moves forward, it is expected to net AT&T just roughly half of the $49 billion it paid for DirecTV in 2015. But the benefits of the deal outweigh the losses, bankers and Apollo officials are arguing.
DirecTV is considered a declining asset as customers of the satellite television providers increasingly view content through other distribution channels. The 2015 DirecTV purchase also cost AT&T close to $20 billion in debt that is still on AT&T’s books and has drawn criticism from activist investor Elliott Management Corporation, which recently took a stake in the telecom giant. The deal is structured to relieve AT&T of this debt burden, these people with knowledge of the pitch say.
It is unclear how much money Apollo, the world’s largest private equity fund would be willing to pour into a newly formed company, though some people close to the matter say it could be billions. Apollo, founded by Leon Black, has close to $250 billion worth of assets under management. Its focus is restructuring public companies, taking them private, and then selling them for a profit.
“What no one has picked up on is just because AT&T has said it doesn't want to sell DirecTV, doesn’t mean they won’t spin it off,” a person with direct knowledge of the matter tells FOX Business. “This proposal is not a direct sale.”
In the Apollo proposal, AT&T would maintain control of DirecTV and its more than 20 million customers (Dish is smaller, with around 12 million satellite TV customers). Recently AT&T chief operating officer John Stankey said the company had no plans to relinquish control of DirecTV because it’s an integral part of AT&T’s strategy as a major distributor of its own news and entertainment content following the company’s recent acquisition of Time Warner. Bankers argue that the deal would allow AT&T to maintain control, even if Apollo and Dish are minority partners.
Press officials for AT&T and Dish declined comment but would not dispute that Apollo has made the pitch through an outside banker. People inside AT&T, however, confirm the pitch was made but say there are no active discussions right now with Apollo. These people add that AT&T management hasn’t totally closed the door on the deal or something similar given the issues affecting DirecTV.
The Apollo idea is being floated at a precarious time for DirecTV, the nation’s largest satellite TV company, which provides services to around 22.9 million subscribers. Despite its massive reach, DirecTV has been hemorrhaging customers—losing 2.5 million subscribers in the last year alone.
Financiers, including Apollo, believe combining Dish, which has roughly 12 million subscribers, with DirecTV would help both outfits compete in a business that is shrinking and at a time AT&T is under pressure to cut costs as it digests its recent $85 billion deal to acquire Time Warner, according to a person familiar with the pitch. The joint venture idea would be attractive, bankers argue, because there probably won't be many buyers for DirecTV given its business outlook.
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The proposal also comes as Elliott has accumulated a $3.2 billion stake in AT&T, and is pushing the telecommunications conglomerate to cut costs, unload debt and sell some assets including DirecTV. Elliott, in its letter to the board, has also raised concerns about the lack of leadership continuity at the telecom giant.
AT&T already appears to be implementing some of Elliott’s suggestions. Earlier Wednesday, AT&T said it is unloading $2 billion worth of assets in Puerto Rico and the Virgin Islands to Liberty Latin America.
Some bankers say AT&T will be forced to take the Apollo proposal seriously for these reasons: DirecTV is bleeding customers and there may not be many buyers for the assets.
While some senior executives at AT&T believe there would be significant antitrust issues in a DirecTV-Dish combination because of the company's dominance of the satellite TV market, bankers say such concerns are overblown. They point to the Department of Justice’s recent approval of the T-Mobile merger with smaller wireless carrier, Sprint, two of the biggest outfits in the wireless business.
“If you apply the logic from a T-Mobile-Sprint merger to a DirecTV and Dish deal, the arguments are the same,” this person added.