AT&T exploring a deal for DirecTV (again)

 AT&T Inc. is taking a fresh look at its DirecTV business, according to people familiar with the matter, exploring a deal for a service wounded by cord-cutting.

The telecom and media giant and its advisers at Goldman Sachs Group Inc. have been in talks with private-equity suitors about the satellite TV unit, some of the people said. Potential bidders include Apollo Global Management Inc., which had expressed interest last year, and Platinum Equity, these people said.

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The process is at an early stage, and it’s not clear what form any deal would take—or if there will be one at all. It is possible some of the suitors will team up or submit joint proposals. Other investors that were approached have decided not to pursue bids, some of the people said.

AT&T executives have previously explored parting with DirecTV assets, including a potential spinoff or combining assets with rival Dish Network Corp., but obstacles, including antitrust concerns, have gotten in the way.

Any deal for the satellite TV service would be sizable, but likely a far cry from the $49 billion AT&T paid for it in 2015. The pay-TV unit has lost millions of subscribers in recent years as viewers switch to on-demand entertainment services like Netflix Inc. A deal could value the business below $20 billion, some of the people said.

If a deal is reached, it would start to streamline a company that used a series of acquisitions in the last decade to shift from a phone service provider into a media conglomerate. It also left the enlarged AT&T with roughly $180 billion of net debt.

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The purchase of DirecTV made AT&T the biggest U.S. pay-TV provider, a title it later ceded to Comcast Corp. as satellite customers canceled. In 2018, a roughly $80 billion takeover of Time Warner added HBO, the Warner Bros. film studio and cable channels like CNN to AT&T’s portfolio.

The latest deal talks were spurred by Chief Executive John Stankey, an AT&T veteran who took the corner office in July from longtime boss Randall Stephenson, who remains chairman. Mr. Stankey has said the company should sharpen its focus on core connectivity services.

Cellphone service and wired broadband remain AT&T’s biggest profit engines and account for more than half of the company’s over $180 billion of annual revenue. Those telecom units have played a key role stabilizing overall earnings this year as the coronavirus pandemic drained revenue in its satellite arm and in its WarnerMedia division.

AT&T shares have missed out on the stock market’s recent rally. The shares are down more than 20% year-to-date, compared with a roughly 8% advance in the S&P 500 index.

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The talks aren’t certain to yield a sale, and the structure of any deal could result in AT&T retaining a stake in DirecTV. The Dallas company has tested market interest in several pieces of its empire only to decide to keep the units in-house. The company recently paused a sale process for its Warner Bros. Interactive Entertainment videogame unit, according to a person familiar with the matter.

Shedding a majority of the shrinking pay-TV business could offer a cash boost, while also triggering a costly write-down for AT&T. Cord-cutting has caused the most damage at AT&T, which shed 7 million U.S. video connections over the past two years. AT&T doesn’t break out revenue or profits for DirecTV.

Executives say the customer-loss trend is exacerbated by the pandemic. Many bars, hotels and airlines that use satellite feeds are operating at diminished capacity—if at all—sapping more of the unit’s revenue.

The company could still retain pay-TV customers if it decides to drop the satellite infrastructure. Executives earlier this year launched a service called AT&T TV, which delivers DirecTV channels over the internet through a cable box that customers install themselves.

Ticker	Security	Last	Change	Change %
T	AT&T INC.	22.98	+0.15	+0.68%

“To the extent that we’re able to get those customers engaged with us on those platforms, then we’re in a good place and we’re OK with that,” Mr. Stankey said in a July television interview. “And if that takes us down a path that says satellite delivery is less important, so be it.”

AT&T also has joined the streaming fray by launching HBO Max in May. About 4.1 million people had activated the new service by the end of June. Earlier this month, WarnerMedia’s new boss ousted several executives, including the head of HBO Max.

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Apollo deal makers have long eyed DirecTV as a potential target. The firm last year pitched a three-way deal that would spin some of the division’s hard assets into a new holding company controlled by Apollo, DirecTV and rival Dish, according to documents reviewed by The Wall Street Journal.

Whether Apollo’s new proposal involves a similar structure couldn’t be learned.

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Dish Chairman Charlie Ergen has repeatedly called the union of the country’s two major satellite-TV providers “inevitable,” but AT&T executives have highlighted hurdles that would deter such a deal. Antitrust enforcers could block the deal to preserve competition in the market for live TV channels in rural areas, where satellites are often the only option available.

Activist investor Elliott Management Corp. waged a public campaign last year challenging AT&T’s shift toward media and calling on AT&T to consider asset sales. The two sides ultimately reached a truce, with AT&T promising to conduct a strategic review of its portfolio and buy back more stock. Elliott later reduced its stake in the telecom company.

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AT&T also pledged to continue trimming the debt it amassed from acquiring DirecTV and Time Warner over the past five years. The company said it had about $152 billion of net debt at the end of June after refinancing at “attractive rates.”

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