By Emily Bary
AT&T Inc. and TPG Capital have inked an agreement that will make AT&T’s struggling DirecTV video business a separate company.
The arrangement will create a new company named DirecTV and implies an enterprise value for the new company of $16.25 billion including debt and the elimination of up to $2.5 billion in NFL Sunday Ticket losses. TPG Capital, the private-equity unit of TPG, will take a 30% stake in the business.
AT&T /zigman2/quotes/203165245/composite T -0.33% purchased the DirecTV business for $49 billion in 2015.
The new company will house the DirecTV, AT&T TV, and U-Verse businesses. The companies expect the deal to close in the second half of this year.
AT&T expects to receive $7.8 billion from the new DirecTV upon the close of the deal, of which $7.6 billion will be in cash and $200 million will be the assumption from AT&T of existing DirecTV debt. AT&T plans to use the proceeds from the transaction to reduce its own debt. TPG will contribute $1.8 billion in cash to the new company.
The company took a $15.5 billion charge on its video business last quarter as the company continued to bleed subscribers. It lost 617,000 “premium video” subscribers across its DirecTV and U-verse platforms in the fourth quarter.
AT&T has been under pressure to raise money through asset sales to help with a costly bill for wireless spectrum that the company won at a recent auction. AT&T committed to $23 billion worth of spectrum purchases at a crucial 5G auction, the Federal Communications Commission disclosed Wednesday afternoon.
Shares of AT&T were up 0.6% in after-hours trading Thursday after declining 2.6% in the regular session following the release of the auction results.
AT&T’s stock has dropped 23% over the past 12 months as the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.68% has added 22%.