Private equity powerhouse Apollo Global Management, working with an outside banker, is pitching AT&T, Inc. a deal that would allow the telecom conglomerate to offload some of the risk of its troubled DirecTV unit while still maintaining control of the satellite service provider, FOX Business has learned.
The proposed deal structure would essentially fold Charlie Ergen’s Dish Network Corporation into a new company that would include DirecTV and be controlled by AT&T these people say. Apollo would provide financing for the transaction and hold a minority equity stake along with Dish, the people add.
If the deal moves forward, it is expected to net AT&T just roughly half of the $49 billion it paid for DirecTV in 2015. But the benefits of the deal outweigh the losses, bankers and Apollo officials are arguing.
DirecTV is considered a declining asset as customers of the satellite television providers increasingly view content through other distribution channels. The 2015 DirecTV purchase also cost AT&T close to $20 billion in debt that is still on AT&T’s books and has drawn criticism from activist investor Elliott Management Corporation, which recently took a stake in the telecom giant. The deal is structured to relieve AT&T of this debt burden, these people with knowledge of the pitch say.
It is unclear how much money Apollo, the world’s largest private equity fund would be willing to pour into a newly formed company, though some people close to the matter say it could be billions. Apollo, founded by Leon Black, has close to $250 billion worth of assets under management. Its focus is restructuring public companies, taking them private, and then selling them for a profit.
“What no one has picked up on is just because AT&T has said it doesn't want to sell DirecTV, doesn’t mean they won’t spin it off,” a person with direct knowledge of the matter tells FOX Business. “This proposal is not a direct sale.”
In the Apollo proposal, AT&T would maintain control of DirecTV and its more than 20 million customers (Dish is smaller, with around 12 million satellite TV customers). Recently AT&T chief operating officer John Stankey said the company had no plans to relinquish control of DirecTV because it’s an integral part of AT&T’s strategy as a major distributor of its own news and entertainment content following the company’s recent acquisition of Time Warner. Bankers argue that the deal would allow AT&T to maintain control, even if Apollo and Dish are minority partners.
Press officials for AT&T and Dish declined comment but would not dispute that Apollo has made the pitch through an outside banker. People inside AT&T, however, confirm the pitch was made but say there are no active discussions right now with Apollo. These people add that AT&T management hasn’t totally closed the door on the deal or something similar given the issues affecting DirecTV.