DirecTV Sale Scenarios Heat Up After Dish Commentary, Activist Pressure On AT&T

Dade Hayes

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AT&T, which paid $49 billion to acquire DirecTV in 2015, has faced increasing pressure from investors to get the satellite distributor on a more promising path.

This week, the notion that the companies could part ways has gained currency. That would be a surprising outcome given the empire-building of AT&T. The telecom giant has determinedly bulked up through large, risk-laden purchases of Time Warner and DirecTV, which has fewer than 18 million subscribers now, down from 21 million in 2015.

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Charlie Ergen, chairman of rival satellite operator Dish Network, speculated about a merger onstage at the Goldman Sachs Communacopia conference Tuesday. Analysts and the press have been amplifying the skepticism of Elliott Management, the activist hedge fund that has taken a $3.2 billion position in AT&T and last week issued a harsh letter criticizing its direction.

On Wednesday afternoon, the Wall Street Journal reported that the company is actively considering a sale of the unit, citing unnamed insiders. John Stankey, who has run WarnerMedia over the past two years, is poised to take on a bigger role as COO and will have oversight of the Communications unit, which includes DirecTV.

Publicly, the company has publicly tried to maintain a brave face as DirecTV’s erosion has continued apace. In response to a query by Deadline, AT&T had no comment. During his own session at the Goldman Sachs conference on Tuesday, CEO Randall Stephenson did not mention DirecTV much but he defended the strategic moves by the company and its management.

Overall subscriber numbers have dropped ever since the acquisition, and an effort to leverage the brand via the internet, a service previously called DirecTV Now and now called AT&T TV, has lost traction. In the second quarter, all of the company’s platforms lost 1.1 million subscribers.

Ergen was asked about the notion of DirecTV combining with Dish, which is smaller at about 12 million subscribers. “There is certainly synergy and economics in that,” he said, though it’s far from certain that such a combination “would pass regulatory muster.” Dish held negotiations to combine with DirecTV in 2014, only to lose out to AT&T.

AT&T CFO John Stephens last week said a Dish-Direct merger has been “been tried and has been rejected” over regulators’ concerns.

Elliott didn’t offer any thoughts about who should buy DirecTV. It just shined a harsh spotlight on the original deal and the liability it believes the operation has come to be.

“Notwithstanding AT&T leadership’s assertions that ‘pay-TV is a very good, durable business’ when the transaction was announced, the pay-TV ecosystem has been under immense pressure since the deal closed,” the fund wrote. “In fact, trends are continuing to erode, with AT&T’s premium TV subscribers in rapid decline as the industry, particularly satellite, struggles mightily. Unfortunately, it has become clear that AT&T acquired DirecTV at the absolute peak of the linear TV market.”

Jason Bazinet of Citibank, wrote in a note to clients that an outright sale to or merger with Dish would be problematic. But Dish’s recent accumulation of wireless spectrum as it pivots away from pay-TV could offer a workable scenario. “One possible alternative for AT&T is to exchange the DirecTV assets for Dish’s spectrum (and cash or equity),” he wrote.

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