About two weeks after a Bloomberg report that said Altice USA had hired investment banker Goldman Sachs to seek a buyer for its Suddenlink systems, company CEO Dexter Goei confirmed that a sales process is “going on,” but declined to offer more details. 

Suddenlink has about 1.8 million subscribers in 17 states in the Midwest, south and western parts of the country. Altice is also in the process of rebranding the Suddenlink systems under its Optimum brand.

Goei’s confirmation came during a conference call with analysts to discuss Q2 results.

News of the sales process confirmation drove Altice USA stock -- which had been down about 2% in after-hours trading earlier -- up nearly 9% to $10.50 each in after-hours trading.  

“We can confirm there is a process going on,” Goei said on the call. “I don’t think we want to comment any further than that, much like we did when there was a lot of chatter around Lightpath. We’ll update you and the rest of the market when we deem it appropriate to update. But at this time there is nothing further to talk about.”

Altice sold a 49% interest in its Lightpath telecom unit in December 2020 to Morgan Stanley Infrastructure Partners in a deal with an implied value of $3.2 billion. 

The value of Suddenlink would depend on the buyer. While Bloomberg had said the systems could sell for as much as $20 billion, implying a deal multiple of 14 times cash flow, many believe the systems would sell for less. 

Goie said the company has “received a lot of reverse inquiries for all or parts of the Suddenlink assets” but declined to speculate on potential buyers or prices. 

“I don't think we want to get into a debate,” as far as the financials or operations of the systems, Goei said. “The numbers have been out there historically on the assets, so you can probably figure out what the numbers look like.” ■

It was only about five years ago when AT&T, opening its checkbook wide to break into the pay TV distribution business in 2015, touted its $48.5 billion purchase of DirecTV as the beginning of a new era in media. Armed with 26 million subscribers -- including about 5.7 million from its existing IPTV business U-verse -- AT&T was going to transform the way people watched TV.

Fast-forward five years and AT&T, for what seems like the umpteenth time, is looking to sell DirecTV to anyone with a pulse. According to reports, the telco is willing to part with a little more than 50% of the satellite giant for about $20 billion. 

Related: Will AT&T-DirecTV Merger Fly? 

DirecTV still has about 16.3 million subscribers, throws off about $4 billion in free cash flow a year and is still a force in rural America. The bad news: it is losing customers at an 18% annual rate (about three times the pace of traditional cable operators), and with the upcoming RDOF auctions, some cable companies (like Charter) could aggressively deploy broadband in rural areas. Broadband is what helped kill DirecTV in urban markets, and a lot of analysts believe it could be the final nail in DirecTV’s coffin. 

It’s a shame, because less than a decade ago DirecTV was basically the gold standard for pay TV, leading JD Power customer satisfaction surveys, pioneering innovative programming (NFL Sunday Ticket) and technology (digital TV) and causing cable operators fits. Now, AT&T has reportedly stooped to letting certain non-DirecTV subscribers sign up for Sunday Ticket -- and for at least the past year it has seemed that AT&T has lost interest in the former satellite TV jewel.

AT&T has been not-so-quietly removing the DirecTV brand -- so important when it bought the satellite giant in 2015 -- from practically every product. DirecTV Now changed its name to AT&T TV Now last year. The satellite service is still called DirecTV but the flagship distribution product is called AT&T TV, an IP-based service of questionable subscribership. On the streaming side, HBO Max is the dominant brand, a product of its 2019 purchase of Time Warner Inc.

In a blog post, MoffettNathanson principal and media analyst Craig Moffett wrote that while he believes AT&T would be better off without “the albatross that is DirecTV,” he doubted it would be able to find a suitable buyer. 

Because the biggest question surrounding DirecTV is and always has been its valuation. Aside from the aforementioned subscriber erosion, the analyst points out that DirecTV’s ARPU growth -- in the past in the mid-single-digit percentages --will likely decline to low single digits, which would affect revenue and cash flow growth negatively.

And then there are the purported suitors AT&T is courting for DirecTV -- private equity players. According to the Wall Street Journal, which first broke the story that AT&T was (again) exploring its options for DirecTV, AT&T was talking to Apollo Global Asset Management and Platinum Equity as potential buyers. 

But private equity usually looks for one of three things when they are considering a purchase -- an undervalued asset (nope), an underappreciated or emerging market (again, nope), or an asset that can be monetized through an IPO or a sale (maybe).

Moffett said an IPO is not a feasible option, and a sale to satellite TV rival Dish Network, while possible, isn’t as attractive as it seems to be.

Dish, which is deep into building its own wireless network, has lost fewer satellite TV customers because it has focused on rural subscribers, according to Moffett. But that doesn’t mean slapping it together with DirecTV will make things better.

Merging with Dish would only improve the subscriber erosion to 15% per year, according to Moffett, adding that with Charter and others planning to increase rural broadband buildouts, the picture is even gloomier.

“If we see a huge post-COVID stimulus/infrastructure bill next year targeting broadband expansion, as seems likely, then the defensible rural segment will all but disappear,” Moffett wrote.

Even analysts more open to a sale to Dish, do so with a healthy dose of caution.

In a note to clients Monday, Barclays Research media analyst Kannan Venkateshwar said that a Dish/DirecTV merger, while rejected by legislators in 2002, is more likely given how the market dynamics have changed. But he warned that the current administration has not been too willing to make things easy for AT&T. 

“Even if the deal is approved ultimately, the political environment could result in an inordinately long approval process which may change the economics and rationale of the deal in the interim given the acceleration in cord cutting,” Venkateshwar wrote.

A buyer could run the business for cash, but Moffett added for that to be attractive to a private equity buyer, they would have to get in at a very low entry multiple.  

But AT&T is constrained there too. Moffett wrote that after operating leases, pension and post-retirement health benefit obligations and whatnot, AT&T’s leverage ratio is about 3.5 times EBITDA, already pushing the limit of its investment grade credit rating. Selling DirecTV at a lower multiple would only make AT&T’s leverage ratio higher, which is not an option, he wrote.

“Would any buyer pay more than 3.5x EBITDA for DirecTV?” Moffett asked. “We doubt it.”

So, five years into its multi-billion dollar marriage, breaking up won't be that easy for DirecTV and AT&T.

AT&T is reportedly exploring options, including a possible sale, for its DirecTV satellite TV unit, according to the Wall Street Journal.

AT&T and its advisers -- led by Goldman Sachs -- are apparently in early exploratory talks with private equity investors like Apollo Global Management and Platinum Equity, the Journal story said. While no deal is imminent, unloading the troubled satellite unit would remove some heavy burdens for the telco.

AT&T decline comment.

Investors responded tepidly to the news -- AT&T stock was up about 2% to $30.62 each in after-hours trading Aug. 28. 

AT&T purchased DirecTV in 2015 for $48.5 billion and the satellite company has been on a steady decline almost from the beginning. Once the largest pay TV service provider in the country with more than 25 million satellite and IPTV subscribers, DirecTV has been bleeding customers for years -- it lost nearly 1 million satellite TV customers in Q2, finishing that period with about 17.7 million pay TV customers..

Related: AT&T Needs to Kill DirecTV to Save It 

AT&T’s patience with DirecTV quickly waned, especially as the company launched a streaming service -- DirecTV Now, now called AT&T Now, in 2016, which seemed to be a direct competitor to its satellite service. In the meantime, AT&T paid more than $100 billion for programmer Time Warner in 2019, launching yet another streaming service in May -- HBO Max --  and seems to have put most of its faith in the streaming content business. 

According to the Journal, AT&T could fetch about $20 billion for DirecTV, less than half what it paid, but enough to help pay down some of the debt associated with the Time Warner buy. 

Another possible buyer could be satellite TV rival Dish Network, which has about 9 million satellite TV subscribers. Dish chairman Charlie Ergen has said he believes a DirecTV merger could work,  especially with the current Presidential administration, but there is still some doubt regulators would approve a deal.    

Standard Media Group said it has purchased nine television stations in six markets from Waypoint Media and Vision Communications for $59.2 million.

The stations include affiliates of the Big Four networks and MyNetwork TV and include: WGBC-TV (Fox and NBC) in Meridian, Mississippi; WHPM-LD (Fox) in Hattiesburg, Mississippi; WNBJ-LD (NBC) in Jackson, Tennessee; KJNB-LD and KJNE-LD (Fox and CBS) in Jonesboro, Arkansas; WPBI-LD (Fox and NBC) and WPBY-LD (ABC) in Lafayette, Indiana; and WYDC-TV (Fox) and WJKP (MyNetwork TV) in Elmira/Corning, New York.

Also as part of the transaction, Standard Media is purchasing Waypoint’s news production operations located in Little Rock, Arkansas, as well as a combination of 15 FM and AM radio stations in three markets owned by Star City Broadcasting in Lafayette, Indiana, and Sound Communications, LLC in Olean and Elmira/Corning, New York.

“This is the second acquisition Standard Media has announced in 2019, and we are looking forward to adding these stations to our expanding broadcast group,” Standard Media CEO Deb McDermott said in a press release. “We are also excited to begin working with the talented teams in each of these markets. Waypoint and Vision have been successful in building these station groups, and our focus will be on continued growth with a focus on quality news.”

The deal is subject to regulatory approval and is expected to close in Q1 next year.

“We are thrilled to hand off our station group to Standard Media. We see them as very similar career broadcasters and operators that understand the future of our business. This bodes well for our employees, our advertisers and the communities we serve,” Waypoint Media founder Mike Reed in a press release.

Pillsbury Winthrop Shaw Pittman LLP acted as legal advisor to Standard Media. Kalil & Co., Inc. acted as exclusive financial advisor to Waypoint and Vision.

It was probably a given that AT&T would have to evaluate its options for DirecTV, in light of the lengthy letter one of its shareholders sent to the telco’s board of directors earlier this month, basically putting the 2015 purchase of the satellite giant on par with the introduction of New Coke, the smokeless cigarette and other equally terrible business decisions. But with the cat out of the bag -- the Wall Street Journal reported that AT&T is considering selling, spinning off or maintaining the status quo for the asset -- the consensus seems to be building that AT&T will have to do something. Just what still remains to be seen.

Hedge fund Elliott Management started this whole mess on Sept. 9, when it revealed that it had a $3.2 billion stake in AT&T (still well under 3% of outstanding shares) and fired off a letter to AT&T’s board criticizing chairman and CEO Randall Stephenson’s costly foray into the media business, particularly singling out DirecTV as an asset that should be disposed.

Elliott’s letter was typical of a lot of outsiders that buy into companies on a downturn -- it criticized management for embarking on the media buying spree -- AT&T has spent more than $150 billion in the past four years on the purchase of DirecTV and Time Warner Inc. -- lamented the stock price -- at between $36 and $37, Elliott says the stock is severely undervalued -- and criticized personnel moves.

Of particular ire was the decision to name WarnerMedia chief John Stankey as chief operating officer of AT&T. Elliott was perturbed that instead of conducting a thorough search for the most qualified executive available, it instead named Stankey -- who already was running a WarnerMedia, “itself a massive and very different business that clearly requires a full-time manager,” and who “would now also be responsible for an additional $145 billion of revenue as the president and COO of the entire company.”

Elliott mapped out a multi-point plan to restore AT&T to its former glory by switching its focus back to telecommunications, divesting the DirecTV business and other non-core assets, reducing inefficiencies and enhancing leadership and oversight. Follow those steps, Elliott said, and AT&T could be a $60 stock -- a 65% premium to its current price.

Related: AT&T Needs to Kill DirecTV to Save It 

At the Goldman Sachs Communacopia conference Tuesday, Stephenson hinted that AT&T would look into Elliott’s suggestions, adding that they were a “mixed bag.”

Let’s for a moment forget that improving inefficiencies and getting rid of under-performing assets isn’t exactly outside of the box thinking -- what business in its right mind wouldn’t want to do that? But don’t forget that a lot of people didn’t like the DirecTV deal back in 2015 -- it was a declining asset, the price was too high, and it wasn’t really clear what AT&T had in mind for the satellite business. 

Fast forward four years and those issues are even more pressing -- DirecTV has dropped about three million subscribers since 2015, the migration to its streaming service AT&T TV Now (formerly DirecTV Now) has peaked at about 1.6 million customers and is falling and its upcoming IPTV offerings -- AT&T TV and HBO Max -- are facing uncertainty and heightened competition from The Walt Disney Co. (Disney+), Apple (Apple TV Plus) and NBC Universal’s upcoming Peacock streaming service.

DirecTV caused a bit of a panic in Q2 when it lost nearly one million satellite TV and OTT subscribers, most of whom the company said were low margin customers rolling off deep discounts. The company has said it expects to lose another 300,000 to 350,000 pay TV subscribers in Q3, which added more fuel to the fire. 

But what a lot of people are forgetting is that maintaining the satellite status quo was never part of AT&T’s strategy with DirecTV in the first place. AT&T knew the satellite business was declining when they bought it -- they’d have to be blind not to see it -- but they didn’t care. What attracted them to DirecTV was its programming contracts -- which it could use as new distribution products were created -- and a customer base that could be migrated to those new products. The real value is in the people connected to AT&T’s offerings -- Stephenson estimated that number is about 170 million people across wireless, broadband and pay TV platforms -- and how they could monetize them through targeted advertising.

Veteran network systems executive and Connolly Network Insight chief Paul Connolly, who just issued his second report on AT&T -- AT&T Media Strategy Update 2019  -- said the ad business is at the center of AT&T’s media strategy.

With the national TV ad business at about $70 billion -- around the same as the industry generates from monthly pay TV subscription fees -- it’s a huge market and one that AT&T has been gearing up to address for awhile.

“I’m a firm believer that if they can pull off what the original plan was to do, which was to finally figure out how to do targeted advertising, they could change the economics pretty significantly,” Connolly said. “The question is how real is it? How close are they? And when can they get it rolling?”

To Connolly, AT&T’s moves over the past four years have all led to this point -- the launch later this year of AT&T TV, a thin-client IP-based offering that will offer new capabilities and will likely be priced aggressively, which should help attract and retain customers.

“I think they have a tool now to really stem the cord cutting,” Connolly said. “It allows them to basically control the home, show the AT&T screen, pull in DirecTV, pull in all the other OTT apps, has a Google Assistant voice remote and all of the Google Play Store apps. It’s like a service provider offering. It’s not an OTT offering, but it happens to run over IP streaming.”

To me, AT&T has always seen DirecTV as the means to a goal, not the end-all, be-all. Initially, the move was to migrate its wireline U-verse pay TV customers to DirecTV, and later to migrate more price-conscious satellite customers to the AT&T TV Now OTT service. The next step will be to migrate more pay TV customers to AT&T TV.

But that won’t happen overnight. And remember, AT&T didn’t get into the TV distribution business to get into price wars with Dish and Comcast. The goal is advanced advertising, but they only get there if they can keep most of those 170 million relationships. Losing or selling off 18 million DirecTV customers doesn’t help. In fact, it might collapse the whole model.

Granted, the ad model is pretty risky too. The industry has been waiting for targeted advertising to take hold for more than a decade, to no avail. But maybe, just maybe, technology and viewer habits have caught up to each other to make this the year -- or the year prior to the year -- for targeted ads to plant its flag in the advertising space.

“They could tilt the economics in favor of more advertising revenue versus subscription revenue,” Connolly said. “But if you don’t have the subscriber revenue, you don’t have the customers to do the targeting on.”

So that leads us to what will AT&T do? In a research report Thursday, Barclays media analyst Kannan Venkateshwar said the company has four options -- a sale, a split, a spin or a joint venture.

The possible sale of DirecTV brings up past memories of attempts to combine the country’s largest satellite TV service provider with it rival Dish Network, a pairing that some believe is more likely today than in the past, mainly because of the emergence of over-the-top competition and the steady decline of the satellite business.

But even Dish Network chairman Charlie Ergen, who would benefit from a DirecTV pairing, thinks it’s a long shot.

At the Goldman Sachs Communacopia conference Tuesday, Ergen said that although Dish “looks at everything” and a pairing would make strategic and economic sense, he doubted it would pass the regulatory test.

Regulatory issues could be a real problem. It’s what derailed any hope for a DirecTV/Dish merger in the past, and though there is a feeling that the current administration would look more favorably on a deal, Venkateshwar wrote that confidence might be misplaced.

He noted the difficulty that AT&T had in getting its merger with Time Warner Inc., approved -- the U.S. Dept. of Justice tried to block the deal twice in federal court -- President Trump’s ongoing Twitter battle with AT&T’s CNN news operations -- which he regularly calls “fake news” -- and just plain old antitrust law.

Combining DirecTV and Dish would have tremendous synergies -- and create a satellite company with about 30 million subscribers, tops in the pay TV universe -- but it would also remove the only viable competitor in most rural markets. And without a broadband product to bundle with video, combining the two would in some eyes merely hold off the inevitable.

Related: Can an AT&T-DirecTV Merger Fly? 

In his note, Venkateshwar wrote that a valuation of DirecTV compared to AT&T’s purchase price -- $48.5 billion in 2015 -- could only serve to reinforce Elliott Management’s criticism that AT&T paid too much. Worse yet, Venkateshwar said not only would a valuation prove Elliott’s point that the move into entertainment was a mistake, it “would be implicitly perceived as an acknowledgement of this by the company.”

Federal approval would be difficult even in today’s environment because Dish and DirecTV overlap in about 30% of their respective footprints. While in the past those issues are usually cleared up by forcing divestitures, that also is problematic because “there are no obvious buyers of this base,” Venkateshwar wrote.

The analysts also wasn’t a big fan of the split-of and spin-off options -- while they would help reduce leverage, AT&T already has a plan to get to under 2.5 times leverage in the next few years.

That leaves a joint venture, which the analyst sees as an attractive path especially if DirecTV and Dish share common back end cost.

“This could involve not just combining the transmission infrastructure but also functions such as customer support, engineering functions and billing systems,” he wrote, similar to what Charter and Comcast have done with their wireless businesses.

Venkateshwar stressed that creating a joint venture won’t be easy, but that despite the “execution challenges, we believe both management teams have enough incentives to consider this possibility.” He estimated that a JV could save between $500 million and $1 billion in combined costs and could result in AT&T’s margins rising by 50 to 100 basis points.

In the end, the Barclays analyst said that selling DirecTV to Dish for cash would be the best, but said there is a low likelihood of that happening because of regulatory concerns, or splitting off the assets, which presents other problems like does it make sense to own content (Time Warner) if AT&T doesn’t own distribution?

Venkateshwar said ultimately, the best move may be to throw in the towel on media all together.

“...[W]e believe the right sequence for AT&T, if it does indeed intend to go down this path, would be to consider a sale of Turner first and then split DirecTV off,” Venkateshwar wrote. “It may even make sense to combine these two assets and then split it off to shareholders.”

But I think AT&T has another, even more likely option -- keeping DirecTV and moving forward with the strategy they intended. It’s either that or admit that the past four years were just a bad dream.