AT&T: DirecTV Sale's Most Valuable Component Might Not Be The Cash

Jan. 08, 2021 9:28 AM ETAT&T Inc. (T)LCID91 Comments
Max Greve profile picture
Max Greve


  • Despite recent reports, I cannot believe that AT&T management would walk away from an offer to sell DIRECTV for $15 billion.
  • Assuming the sale goes forward, it is likely that AT&T will report a write-down of as much as $32.6 billion in connection with DIRECTV.
  • That massive write-down will generate deferred tax assets worth as much as $1 per share on their own.
  • This is beneficial to AT&T, as the write-down itself is non-cash and largely already priced in. However, AT&T will probably simultaneously report a massive debt issuance to fund its C-Band spectrum auction purchase.
  • Altogether, I expect that the latter will outweigh the former, so AT&T may not get much of a bounce despite a very fortuitous overpayment by the acquirer of DIRECTV.

After writing an AT&T (NYSE:T) article just last week, I hadn't intended to write another so soon, but AT&T is currently rather fascinating to me. It is a company whose bullish and bearish trends can be encapsulated almost perfectly in a tale of two trends, each involving an auction of a multi-billion-dollar asset.

A Completely Abstract Way To Begin

Among the many, many ridiculous deals and decisions to come out of the 2008 financial crash, one of the more absurd ones, at least to those like us who follow market developments closely, was the Merrill Lynch/Lone Star transaction. For those who don’t recall, back in 2008 Merrill Lynch was desperately seeking a way to offload its toxic CDO/MBS portfolio, and after a lot of “are you nuts?” Merrill Lynch found a buyer, eventually: Lone Star Funds, a private equity shop which agreed to pay 22 cents on the dollar for the assets, with the usual 3:1 debt/equity ratio for private equity. The funny thing was, no one would lend Lone Star money either, not against assets so toxic, so Merrill Lynch itself lent Lone Star the 75% debt portion of the money to complete the deal.

I know, I know, this is an AT&T article, not a Merrill article. Let’s get to AT&T now, but just keep that little anecdote in the back of your mind; it is relevant to AT&T, or at least it potentially could be. For one thing, Merrill only seemed to make such a lopsided deal because it expected the market would reward it for getting an under-performing asset off the balance sheet, no matter how ridiculous the terms it was offered. AT&T is now trying to do something very similar with DIRECTV, though hopefully while obtaining better terms to do so.

Hopefully, that's the only parallel

This article was written by

Max Greve profile picture
Max Greve is a graduate of Northwestern University with a quadruple major in History, Economics, Political Science, and International Studies. Max is a full-time writer and in addition to stock market trends also writes articles on government, current events, macroeconomic trends, and last but not least, the ongoing inefficiencies of professional sports.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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