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DirecTV sale in doubt —

AT&T reportedly struggling to sell DirecTV at anything but a huge loss

AT&T told bidders it may cancel auction if offers don't improve, NY Post reports.

A large AT&T logo seen on the outside of its corporate offices.
/ AT&T corporate offices on November 10, 2020 in El Segundo, California.
Getty Images | AaronP/Bauer-Griffin

AT&T is disappointed in the $15 billion offers it has received for DirecTV and has "told prospective bidders it may cancel the auction altogether if it doesn't get better offers," the New York Post , citing "sources close to the situation."

AT&T began seeking a buyer for the struggling satellite division months ago. In October, news reports said that first-round bids valued DirecTV at about $15.75 billion, and AT&T apparently hasn't been able to get better offers in subsequent auction rounds. On December 9, The Wall Street Journal that the latest bids valued DirecTV "at more than $15 billion including debt." (The actual sale price could be less than $15 billion, as AT&T apparently intends to retain a stake in DirecTV.)

Top bidders included investment firms Churchill Capital and TPG. "Apollo Global Management, long seen by many as the front-runner, submitted a bid valuing the business at less than $15 billion," the Journal wrote, citing its own anonymous sources. The Journal said the auction is in a late stage and that a sale agreement could be reached in early 2021.

But a deal doesn't appear certain, as the New York Post's story yesterday said that "AT&T pushed back a deadline for final bids for DirecTV into January" because of the low offers.

"[I]nsiders tell The Post that AT&T—dissatisfied with those offers—has invited private equity giant TPG Capital to study the books in hopes that it will make a binding offer that props up the price," the Post article said. The Post described bidders as being "surprised by AT&T's threat to pack up and go home partly because its DirecTV business continues to shrink amid rising competition with video-streaming platforms like Netflix—and, more recently, AT&T's own HBO Max service."

According to earlier reports, deal talks included scenarios such as AT&T retaining a in DirecTV or even maintaining while a buyer assumes control of the pay-TV distribution operations.

Millions of DirecTV users fled AT&T

AT&T has lost nearly 8 million customers since early 2017 from its Premium TV services, which includes DirecTV satellite, U-verse wireline video, and the newer AT&T TV online service. Total customers in that category decreased from in early 2017 to at the end of September 2020.

AT&T has driven many of those customers away by repeatedly raising prices and reducing availability of promotional deals and has already announced another round of DirecTV and U-verse TV price increases for January.

It would be a "bitter pill" for AT&T to sell DirecTV for less than a third of the $49 billion it paid for the company in 2015, financial journalist James Brumley last week. But AT&T should still take an offer at that level, Brumley wrote:

Bloomberg Intelligence's John Butler estimated in August that DirecTV would fetch around $20 billion. Any plausible bid is still less than half the $49 billion AT&T paid for the cable provider in 2015, not counting the assumption of DirecTV's $17 billion worth of debt.

Such a deal would be a bitter pill for AT&T's management (as well as its shareholders) to swallow, locking in a loss on the deteriorating television platform. Given its lack of options and DirecTV's woes though, an offer in the $15 billion to $20 billion range plus some of AT&T's $153 billion debt load would be an acceptable exit of the business. That's especially true considering AT&T reportedly wants to maintain a majority of DirecTV, and only remove the property from its balance sheet and transfer management of the business to the buyer.

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Channel Ars Technica