AT&T exits pay-TV and frees DirecTV to combine with rival Dish

By Ciara Linnane

DirecTV deal will allow EchoStar to reduce its debt by about $11.8 billion at close

AT&T Inc. said Monday it has agreed to sell its 70% stake in satellite-TV company DirecTV Entertainment Holdings LLC to its partner, private-equity firm TPG Inc., for about $7.6 billion in cash payments through 2029.

The news was followed by the announcement that DirecTV is buying EchoStar's video-distribution business, which includes Dish TV and Sling TV via a debt exchange, cementing a combination the two companies have sought for decades.

AT&T said its move allows it to fully exit the entertainment industry and focus on its wireless 5G and fiber-connectivity business.

"This transaction also continues to strengthen AT&T's balance sheet by pulling forward cash expected over the next several years," AT&T said in a statement.

AT&T (T) first attempted to exit the business in 2021 when it sold a 30% stake to TPG (TPG) and set up a joint venture. The venture has since paid regular cash distributions to its owners and AT&T has received $19 billion in such payments since 2021, said the statement.

The company had gone all in on the pay-TV business when it acquired DirecTV for $49 billion in a deal that closed in July, following a lengthy regulatory review. It followed that deal with the $85.4 billion acquisition of Time Warner which closed in 2018, but later agreed to merge that business into Discovery (WBD) in 2021 under new Chief Executive John Stankey.

Stankey, who became CEO in 2020, decided to exit entertainment because he believed the company's core investors were more interested in it pursuing phone and internet offerings.

Under the terms of the deal, AT&T will receive $1.7 billion in distribution payments this year, $5.4 billion of after-tax payments in 2025 and $500 million in 2029.

The deal is expected to close in the second half of 2025.

DirecTV, meanwhile, will acquire Dish for a nominal $1 and assume Dish DBS' net debt of about $9.75 billion.

Dish has more than $21 billion of outstanding long-term debt, according to FactSet, the bulk of which matures in 2026.

Previously: A Dish-DirecTV deal may not improve satellite TV's fate much, but bonds still rally

The two companies have been trying to combine for decades but have been stymied by antitrust concerns. The parties attempted to merge in 2002 but were blocked by the U.S. Justice Department on competition grounds. Their most recent attempt to combine came in 2021.

Both companies have been losing subscribers for years amid a consumer shift from pay TV to streaming, as the Wall Street Journal has reported.

The two companies combined have around 20 million subscribers, according to the Journal, down sharply from a decade ago.

The move "will benefit U.S. video consumers by creating a more robust competitive force in a video industry dominated by streaming services owned by large tech companies and programmers," the companies said in a joint statement on Monday.

At close, EchoStar (SATS) will have reduced its total consolidated debt by about $11.8 billion and will have reduced its refinancing needs through 2026 by about $6.7 billion.

The company's outstanding high-yield bonds had already rallied on Friday, after media reports that a deal was imminent, as the following chart from data solutions provider BondCliq Media Services shows.

The biggest gain came in the 5.125% notes that mature in June of 2029, which jumped more than 9 points, as the yellow arrow indicates.

On Monday, some prices moved lower as bondholders reviewed the debt exchange, which will require them to take haircuts to their principal if they opt to take part. The company is seeking at least $1.57 billion in haircuts.

Still, there was net buying of the outstanding bonds, focused on the 11.75% 2027 first-lien bonds, as illustrated by the yellow oval.

The next chart shows the company's full maturity stack.

In a separate statement, EchoStar said the agreement has raised $5.1 billion from existing stakeholders for investment in nationwide 5G Open RAN network and other general corporate purposes.

It also provides access to about $1.5 billion of Dish pay-TV cash flow.

TPG credit unit Angelo Gordon and DirecTV agreed to extend $2.5 billion in financing to EchoStar to meet debt obligations that come due in November.

EchoStar said the release of intercompany obligations in connection with the closing of the transaction will allow it to fully unencumber the 3.45-3.55 GHz spectrum, unlocking incremental strategic and operating flexibility.

"Today's strategic actions will advance our ability to aggressively compete in the U.S. wireless market," EchoStar CEO Hamid Akhavan said in prepared remarks.

AT&T's stock flat and has gained 31% in the year to date, while the S&P 500 SPX has gained 20%.

EchoStar was down 11% but has gained 51% in the year to date.

-Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-30-24 1442ET

Copyright (c) 2024 Dow Jones & Company, Inc.