AT&T is in exclusive talks to divest a minority stake in DirecTV to private equity firm TPG for an undisclosed amount, Reuters has learnt.
According to Reuters, the deal could value DirecTV at more than $15 billion. DirecTV is the telecommunications giant’s pay-TV service. AT&T (T) had previously announced that it was exploring the sale of its non-core assets. According to Reuters, the impending sale of a minority stake in DirecTV to TPG could be an attempt by the company to further reduce its net debt, which stood at $149 billion at the end of 3Q20.
AT&T shares closed at $28.93 on Jan. 22. Its DirecTV business has been losing subscribers since its acquisition in 2014. However, at the end of 3Q20, DirecTV’s subscriber losses improved from 1,163,000 in 3Q19 to a loss of 590,000 subscribers. The company had said that the reason for the reduction in subscriber losses had been its concentration on high-value subscribers. (See T stock analysis on TipRanks)
Back on Oct. 22, AT&T’s CEO John T. Stankey commented at the company’s 3Q earnings call, “I don’t know what the cord-cutting rate is going to be over the next couple of quarters, so to speak. I expect that we saw a little bit of an uptick.”
“I’ve said before and I still maintain, there’s a certain number of sports-consuming households that are going to be the stickier households in the pay TV bundle. That when we kind of get down to that 55 million, 60 million household range, we’re probably going to see a little bit of a plateauing as a result of that. That doesn’t mean that the bundle stays the way that it is. I think there’ll be a number of channels in the bundle that probably fall away over time, and it gets a little bit thinner,” Stankey added.
When it comes to AT&T’s media division, WarnerMedia, its HBO, and HBO Max are doing better, and together they had 38 million subscribers at the end of 3Q20. During the quarter, HBO Max was a key investment that drove subscriber growth, the company said.
Around a month back, Merrill Lynch analyst David Barden reiterated a Buy rating on the stock and set a price target of $36. Barden noted, “WarnerMedia has been driving synergies by eliminating duplicative positions, has revamped senior management, and is leaning into its HBO Max strategy.”
Overall, Wall Street analysts are cautiously optimistic about the stock and the consensus is a Moderate Buy with 6 analysts recommending a Buy, 5 analysts suggesting a Hold, and 2 analysts recommending a Sell. The average price target of $30.91 implies 6.8% upside potential to current levels.
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