Business

AT&T to sell its LatAm DirecTV business to Grupo Werthein

AT&T’s movements exiting content streaming and focusing on its core business reflects streaming's enormous costs and challenges to compete in a crowded industry

Photo: REUTERS/Brendan McDermid
  • The company did not reveal the deal value at which it will sell Vrio to Grupo Werthein;
  • AT&T has been seeking to unwind its debt-laden acquisitions and lighten its balance sheet.

AT&T said on Wednesday it would sell Vrio, its DirecTV business unit in Latin America, to Argentina-based investment group Grupo Werthein after taking a $4.6 billion impairment charge.

Vrio provides live and on-demand video services via DirecTV Latin America, SKY Brasil and DirecTV GO.

Vrio offers services in Brazil through the SKY brand and in Argentina, Barbados, Chile, Colombia, Curacao, Ecuador, Peru, Trinidad and Tobago and Uruguay through the DirecTV brand. DirecTV is a subscription service that offers online access to a variety of live and on-demand programming in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay.

The telecom operator said it took the impairment charge in the second quarter of 2021 as it had classified Vrio as “held-for-sale”.

Presenting its quarterly results, AT&T said Vrio’s revenues were $749 million, essentially stable year over year reflecting pandemic pressures. The unit had an operating loss of $25 million compared to $36 million in the year-ago quarter, with operating income margin of 3.3%, compared to 4.8% in the prior year.

Vrio subscriber net losses of 239,000 were driven primarily by economic pressures and pandemic restrictions in Brazil, AT&T said.

READ ALSO: Discovery to launch streaming service discovery plus in Brazil in September

The company expects the DirecTV transaction to close in the next few weeks, and that the impact of the deal on the remainder of 2021 will be revenues to be lower by $9 billion, EBITDA to be lower by $1 billion, and free cash flow to be lower by about $1 billion, equating to $26 billion for the year.

The company also expects adjusted equity income from $1.0 to $1.2 billion for the last 5 months of 2021 as a result of its 70% ownership of the new DirecTV entity and reimbursements from transition services agreements.

The company expects proceeds of about $7.8 billion at close of the transaction, and annual cash distributions of more than $1 billion.

Post-close, the cash generated by DirecTV’s sale will be used for DirecTV’s capital expenditures and working capital needs, debt financing obligations, and tax distributions. Excess cash will be used for debt repayment and dividend distributions.

The deal comes amid tough competition for cable television service providers as the industry battles with customers cancelling accounts and moving to video streaming services such as Netflix and Disney Plus.

AT&T sold the WarnerMedia content to Discovery – including the Harry Potter and Batman franchises, news network CNN and sports programming – and Discovery’s unscripted shows from lifestyle TV networks such as HGTV and TLC. The enterprise value of the combined company will be $120 billion.

DirecTV’s transaction also shows AT&T’s movements going away from content streaming and focusing on its core business, as streaming presents enormous costs and challenges to compete in a crowded industry, which is the reason why Netflix will also bet on gaming.

“This transaction will further allow us to sharpen our focus on investing in connectivity for customers,” said Lori Lee, CEO at AT&T Latin America, in a press statement. “We remain committed to Latin America through our wireless business in Mexico and services for multinational corporations operating in the region.”

READ ALSO: Globoplay grows subscriber base by nearly 400% since local production pivoted

AT&T’s 41.3% interest in Sky Mexico is not part of the deal.

HBO Max expects nearly 70 million subscribers globally by year-end

AT&T reported its second-quarter results on Thursday showing continuing customer growth in wireless, fiber and HBO Max. In AT&T’s Latin America’s operation, overall revenues were $1.4 billion, up 16.6% year over year due to growth in Mexico. Operating contribution was $152 million compared to $201 million in the year-ago quarter, with operating income margin of 10.7%, compared to 17.0% in the prior year.

Ahead of closing its deal to combine its media content in a deal with Discovery, AT&T said WarnerMedia continued to attract more customers to streaming service HBO Max and notched higher revenue as live sports and televised events resumed from the pandemic.

READ ALSO: The battle between global streaming services heats up as HBO Max comes to Latin America

AT&T raised its forecast for global HBO Max subscribers to between 70 million and 73 million by the end of the year. It previously expected 67 million to 70 million subscribers.

Globally, HBO and HBO Max now have 67.5 million subscribers, compared with 209 million subscribers for Netflix.

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