Telecom giant AT&T has decided to sell its remaining stake in DirecTV to TPG for a price of $7.6 billion.
The stake stood at 70% at the time of the announcement of this deal.
The total cash amount of $7.6 billion is expected to be paid in multiple installments till 2029.
TPG had already acquired a 30% stake back in 2021 for $1.8 billion.
The deal is expected to close later in 2025.
Once it is done, AT&T would have completely exited the satellite TV business. DirecTV will continue to be led by the current management team even after the deal is closed.
AT&T’s improved cashflows
The cash deal for the sale of DirecTV will help the company improve its cash flow.
It will start with an initial payment of $2 billion during the year 2025.
Additionally, DirecTV will make a special distribution of $1.625 billion before 31st March 2025.
AT&T will receive 70% of this amount. AT&T said in a statement:
This sale allows AT&T to continue to focus on being the leading wireless 5G and fiber connectivity company in America. This transaction also continues to strengthen AT&T’s balance sheet by pulling forward cash expected over the next several years
The sale will not only help the company focus on its core business but also get rid of an asset that was going nowhere in terms of its financial performance. It had started to become a burden on a company already struggling from years of underperformance.
The distributions from DirecTV had been on a constant decline for the last couple of years, standing at $2.04 billion last year and $2.65 billion in the year before that.
Time to lock in an attractive yield?
AT&T has always been a favorite of dividend hunters.
However, due to a struggling business, even though its dividend yield became more and more attractive, the risk of its dividend being lowered also kept going up.
Investors have been reluctant to take a position in the stock in the last 5 years, fearing the company may crumble under its debt.
That fear will now be slightly alleviated, as the company exits the satellite TV business, a business that isn’t attractive anymore due to the emergence of streaming technologies that younger generations prefer.
Income-focused investors who want to maximize their returns from the market may dabble at the stock while it is still under the shadows of a struggling business segment.
AT&T currently trades at a PE ratio of around 10, less than half that of T-Mobile US.
This opportunity, coupled with the dividend safety and a renewed focus on its core business can turn the business around.
We can expect increased inflows in the coming days as the market absorbs the sale and starts focusing on the company’s core business performance.
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