AT&T made waves when they purchased DirecTV in 2014 for an impressive $67 billion, but things have not gone as planned since that deal went through. Since the purchase, the service has shed customers at an alarming rate, and several reasons can be cited for the dropoff upon closer inspection. That's why it doesn't exactly come as a surprise that AT&T is reportedly in private talks to sell DirecTV (via Forbes), and according to sources close to the deal, it is seeking to just cut its losses at this point on a deal that was supposed to be a sound long term strategy but ended up becoming a consistent weight on their bottom line.
According to the report AT&T and Goldman Sachs advisors have been talking to private equity firms about purchasing DirecTV, with potential bidders including Apollo Global Management and Platinum Equity. Apollo actually showed interest in purchasing DirecTV previously, but they are likely getting a better deal if they purchase it now, as the deal could end up coming in underneath $20 billion.
That's a far cry from the $65 billion AT&T purchased it for, but unless they have a plan to revitalize the business in some huge way, it is only going to go down from there the longer they don't sell.
As for what went wrong, it's really a matter of timing. When the deal went through AT&T executives were hopeful about the deal, saying that “pay TV is a very good, durable business.”Unfortunately that was right before the age of streaming really took over and Netflix became a major player in the space. Since then the streaming service grew in a huge way, and as it grew it also helped draw customers away from pay TV as a whole, especially DirecTV.
Elliott Management Corporation invested $3.2 billion into AT&T at one point, and they issued a letter about the change in the space, saying that. it appears they bought DirecTV at the wrong time.
Elliott Management wrote “the pay TV ecosystem has been under immense pressure since the deal closed", and then added, "unfortunately, it has become clear that AT&T acquired DirecTV at the absolute peak of the linear TV market.”0comments
That letter also mentioned the change in leadership at DirecTV right after the deal went through, as the entire management team left the company shortly after. That's why Elliott said, “one can’t help but wonder whether AT&T’s difficulties at DirecTV were compounded by this lack of management continuity and experience." It didn't help that the launch of DirecTV NOW, a streaming service, was marred by several issues, a launch that the Elliott letter describes as “poorly executed with delays, technical mishaps, weak customer service and usability issues.”
This isn't the first time a sale has been rumored, however, so we'll just have to wait and see how it all plays out.