AT&T and Dish turn lemons to bitter lemonade
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, Sept 30 (Reuters Breakingviews) -When you’re stuck with a lemon, the best deal on offer is to make some bitter-tasting lemonade. Buyout shop TPG TPG.O is offering just that to AT&T T.N and media mogul Charlie Ergen. The U.S. telecommunications firm is offloading its 70% stake in pay-TV provider DirecTV, which TPG will then merge with rival Dish, owned by Ergen’s EchoStar SATS.O. It’s helpful to everyone - particularly the private equity firm striking the bargain.
The deals announced Monday are the legacy of a decade of frenzied maneuvering. AT&T acquired DirecTV in 2015 to sew up traditional television and some extra cashflow for its dividend. Dish spent years accruing airwaves, ostensibly with the opportunity to sell later, before embarking on the costly mission of building a new wireless carrier.
Things have not worked out. Dish and DirecTV lost nearly two-thirds of their combined television customers since 2016 under streaming’s onslaught. Dish’s parent company EchoStar has roughly $500 million in cash and faces $2 billion of maturing debt in November. AT&T unwound its expensively assembled traditional media empire, spinning off DirecTV in 2021. Monday’s agreement values the company’s equity at an implied $11 billion, down from the $49 billion AT&T plunked down originally.
TPG is acquiring AT&T’s stake for $7.6 billion, but some $5 billion of that is funded by distributions from DirecTV. The business will then merge Dish’s satellite TV operations for all of $1 in equity value - plus the assumption of nearly $10 billion in debt. Even then, everything depends on bondholders accepting a haircut of roughly $1.6 billion.
EchoStar boss Hamid Akhavan likened the agreement’s complexities to landing three 747 jets at once. That might be understating it. TPG’s plan to safeguard the satellite companies’ 18 million-strong subscriber base is to lean on much larger content providers such as Walt Disney DIS.N, which recently pulled its lucrative sports programming in a spat with DirecTV. Even getting to the table will take appeasing merger-skeptical regulators that combining the only traditional television options in many rural areas is copacetic.
Failing that, TPG is extracting one further price, stumping up $2.5 billion of financing so that EchoStar can pay off its looming maturities, at the cost of an 11% coupon. That’s still a win for Ergen, who faced an uncertain future without the lifeline. AT&T, meanwhile, is finally rid of a declining asset in exchange for some upfront payment. Yet EchoStar’s shares fell roughly 12%. It’s lemonade, all right - but it’s by no means sweet.
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CONTEXT NEWS
U.S. pay-TV satellite company DirecTV agreed on Sept. 30 to acquire rival EchoStar’s satellite TV business, which includes Dish TV and Sling TV, and is known as Dish DBS.
Under the terms of the agreement, DirecTV will buy EchoStar’s TV assets for $1 plus the assumption of Dish’s net debt. As part of the transaction, Dish and DirecTV have commenced an exchange offer for $9.75 billion of debt. The deal is contingent on holders of that debt accepting a haircut of roughly $1.6 billion on their principal.
In addition, TPG's credit arm, TPG Angelo Gordon, along with other co-investors as well as DirecTV will provide $2.5 billion of financing to fully refinance Dish debt that matures in November 2024.
TPG also announced that it will acquire the remaining 70% stake in DirecTV it does not already own from telecommunications firm AT&T for a total consideration of $7.6 billion.
The transaction is expected to close in the fourth quarter of 2025 subject to regulatory approvals.
JPMorgan is acting as lead financial advisor to EchoStar while PJT Partners is lead advisor to DirecTV and Barclays is lead advisor to TPG. Bank of America, Evercore, LionTree and Morgan Stanley are also providing advice to DirecTV and TPG.
Editing by Jonathan Guilford and Pranav Kiran
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