AT&T agrees to sell 30% stake in US video business to TPG

AT&T Inc. and private equity firm TPG Capital LP agreed to establish a new company that will own and operate the carrier's U.S. video business unit, consisting of the DIRECTV, AT&T TV and U-verse video services.

The transaction has an implied enterprise value of $16.25 billion for the new entity that will be called DIRECTV, the companies said Feb. 25. AT&T will own 70% and TPG will own 30% of the new DIRECTV.

New DIRECTV will be jointly governed by a board with two representatives from each of AT&T and TPG, as well as a fifth seat for the CEO, which at closing will be Bill Morrow, CEO of AT&T's U.S. video unit.

The transaction, which is expected to close in the second half of 2021, does not include Warner Media LLC's streaming service HBO Max, AT&T Latin American video operations under the Vrio brand, AT&T's regional sports networks, U-verse network assets and AT&T's investment in Innova S. de RL de CV, or Sky Mexico.

AT&T will receive $7.8 billion from the new venture after the spinoff is complete, including the assumption of $200 million in debt. The U.S. carrier expects to use the proceeds to reduce its debt. TPG will contribute $1.8 billion in cash in exchange for preferred units and a 30% interest in the new company's common units. The new DIRECTV secured $6.2 billion of committed bank financing, of which $5.8 billion would be paid to AT&T in cash.

After completion of the deal, the new DIRECTV will enter into a commercial agreement to offer bundled pay TV services for AT&T's wireless and internet customers, as well as a separate deal allowing the new company's customers to retain their access to HBO Max. All current AT&T video customers will be able to keep their services once they become customers of the new DIRECTV, with all existing content deals becoming a part of the new company.

AT&T tapped Goldman Sachs & Co. LLC as financial adviser on the transaction, with Sullivan and Cromwell LLP as legal adviser. Ropes and Gray is TPG Capital's legal adviser, with Credit Suisse as lead financial adviser and BofA Securities as co-financial adviser.