The Wall Street Journal’s report from last Friday that said AT&T is exploring the sale of DIRECTV has generated more questions than answers about the future of the nation’s leading satellite TV service.
The story says AT&T has been “in talks” with private-equity suitors about buying a slight majority of DIRECTV with AT&T possibly holding on to the rest. The “suitors” mentioned in the article include Apollo Global Management and Platinum Equity.
But several financial analysts and journalists have since questioned whether AT&T could pull the deal off for a variety of reasons from DIRECTV’s diminishing value to AT&T’s likely sale demands to possible anti-trust issues if Dish was involved.
“The idea has been floated repeatedly over the past year or so,” MoffettNathanson analyst Craig Moffett wrote in a statement on Monday, according to the Hollywood Reporter. “Speculation from a year ago even featured the same potential buyers, most notably Apollo…To be sure, no one could argue that AT&T wouldn’t be better off without the albatross that is DIRECTV. But we’ve been skeptics about the feasibility of a deal … and we still are.”
Moffett argues that AT&T, which paid $49 billion for DIRECTV in 2015, will ask for more than the satcaster is worth to try to recoup its investment. The analyst notes that DIRECTV has lost several million subscribers since the AT&T purchase, and more defections are likely coming fast.
“The problem is valuation,” Moffett said. “DIRECTV’s subscriber base is declining at the astounding rate of 18 percent year-over-year. And earnings before interest, taxes, depreciation and amortization (EBITDA) is, similarly, falling in the high teens as of last quarter. … Even merged with Dish, pro forma subscriber losses for the two combined would be running at 15 percent per year.”
Hal Vogel, CEO of Vogel Capital Management, told The Hollywood Reporter that news that AT&T wants to jettison DIRECTV could even alarm investors about AT&T’s future.
”It shows how clueless management was in 2015 when they bought it at the start of cord cutting and start of streaming,” he says.
Some analysts have also said a private equity firm would have as much, if not more, trouble managing DIRECTV’s losses than AT&T has.
Dish would be a logical sale partner, but CNBC reports that AT&T is reluctant to even negotiate with the nation’s second leading satellite TV service. The DIRECTV rival is headed by its chairman, Charlie Ergen, who’s noted for being a difficult negotiator.
There has been talk that an equity firm could buy DIRECTV and then swap it to Dish to avoid an AT&T-Dish bargaining headache. But if AT&T fears negotiating with Dish, the equity firm might as well. In fact, Dish is now involved in a carriage dispute with 14 local stations owned by Apollo Global, one of the equity firms mentioned in the WSJ article.
Despite the gloomy analysis, there is a consensus that AT&T would be better off without DIRECTV. Consequently, the company could be sufficiently motivated to find a way to avoid all the obstacles, even if it means sitting down with Charlie Ergen.
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— Phillip Swann