Q. There’s something that absolutely baffles me. Why would AT&T sell DIRECTV for a big loss? I read the New York Post article that said the companies interested are offering like one-third of what AT&T paid for DIRECTV. Does that make any sense? Are they in business to lose money?! — Mort, town withheld.
Mort, AT&T purchased DIRECTV in 2015 for $49 billion, but the New York Post is reporting that companies are offering to buy it now for around $15 billion. That might suggest AT&T is preparing to sell the nation’s largest satellite TV service at a major loss.
But before we jump to that conclusion, there are two things to consider.
One, it hasn’t happened.
Despite the article’s suggestion the sale is likely despite the low-ball offers, AT&T hasn’t pulled the trigger yet. The company is initiating a second round of bids where the price could increase, if not dramatically, at least significantly. And if it doesn’t, AT&T is not required to accept any offer. It’s possible the company could conclude it’s not worth going forward.
Two, we don’t know the sale specifics.
The Wall Street Journal reported last month that AT&T was seeking to hold a minority stake in DIRECTV if it sells it. We don’t know if the offers reported by the Post cover that scenario. If they do, and let’s say the minority stake is 30-40 percent, the $15 billion bid might not seem as unreasonable. The buying company, whoever that turns out to be, would be paying $15 billion (or more) for 60-70 percent of DIRECTV, not the entire 100 percent that cost $49 billion in 2015.
But even under that scenario, AT&T would likely still have to take a loss of around $10-20 billion. That’s a painful story to tell investors, but not as painful as reporting a $30-35 billion loss.
However, even if it loses as much as $20 billion on the two transactions, I think AT&T is prepared to do it because it will remove some of the debt it incurred to purchase it in the first place. This would also enable the company to focus more resources and time on what it believes to be TV’s future: streaming.
You might say that’s a foolish way to do business. But AT&T didn’t buy DIRECTV as a financial investment. The company wanted it in part to create ongoing relationships with a large number of video subscribers. In DIRECTV’s case, that was 20 million households in 2015. AT&T can now use that data base, which includes insightful information on their preferences and habits, to sell HBO Max and AT&T TV. (Note: AT&T is very proficient at creating incredibly detailed consumer profiles once it accumulates enough data.)
While one could argue that some customers now have a negative view of AT&T because of a perceived mismanagement of DIRECTV, the total audience still has considerable value. There are companies who would happily spend billions to know what AT&T knows about those 20 million households.
Mort, hope that makes sense. Happy viewing, and stay safe!
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THE “human” that asked this question is yet ANOTHER “short bus” rider… AT&T are COMPLETE IDIOTS and had NO IDEA of the entertainment business. THEY HAD the $$ to BUY into it because they RIPPED OFF EVERY SINGLE CUSTOMER that had NO OTHER alternative in commutation for DECADES. THAT did NOT make the competent in the entertainment business and the OUTCOME is BANKRUPTCY PERIOD !!
THEY BLEW their load on a GAMBLE because they are in TOTAL DESPERATION MODE and SELLING ASSETS for PENNIES on the DOLLAR to stay on LIFE support until the FINAL CHAPTER which is…INEVITABLE.
AT&T is DONE…GOOD RIDDENS and SOONER the BETTER TOO !!