AT&T Finally Gets Out of the Media Business With DIRECTV Sale | The Motley Fool

With the sale of its 70% stake in satellite television provider DIRECTV, telecom giant AT&T (T 0.59%) is finally fully out of the media business.

The company wasted many billions of dollars over the past decade in an ill-fated attempt to transform itself into a media conglomerate. It paid a staggering $48.5 billion in 2015 to acquire DIRECTV only to see subscribers jump ship. It followed up that deal a few years later with the $100+ billion acquisition of Time Warner. The end result of this dealmaking was the epic destruction of shareholder value.

AT&T has been unwinding these mistakes for years. The company previously sold a 30% stake in DIRECTV to a private equity buyer, and it spun off and merged Time Warner with Discovery to create Warner Bros. Discovery. The remaining 70% stake in DIRECTV has been generating dividends for AT&T, but it also locked up capital that could have been used to pay down debt to invest in the wireless or fiber networks.

On Monday, AT&T announced that it was selling its remaining 70% stake in DIRECTV to its private equity partner, which will merge the satellite TV provider with rival Dish Network. AT&T will get some additional cash and finally break free from its misguided media ambitions of the past.

A cash infusion

The deal to sell its remaining DIRECTV stake is complicated, and it will play out over multiple years. In total, AT&T expects to receive about $7.6 billion in cash payments through 2029 .

In the second half of this year, AT&T expects to receive $1.7 billion in pre-tax quarterly distributions. Another $5.4 billion on after-tax distributions and other payments will come in 2025, with the remaining $500 million arriving in 2029. The deal is expected to close in the second half of 2025.

While this deal marks the end of AT&T’s adventures in the media industry, there’s still plenty of debt left over from the company’s pricey acquisitions. AT&T had roughly $125 billion in long-term debt on its balance sheet at the end of the second quarter, plus another $5 billion set to mature over the next year. The cash from the DIRECTV deal will help the company continue its strategy of knocking down its debt to more sustainable levels.

The cash could also be useful as AT&T invests in its fiber network. The company originally planned to pass 30 million homes and businesses with its fiber network, but earlier this year it announced that it could potentially grow that final tally to 45 million locations. Laying fiber is capital intensive, and the payoff takes time as eligible customers sign up, so unlocking capital tied up in DIRECTV could help the company reach that higher target.

An inexpensive stock

With the sale of its remaining DIRECTV stake, AT&T is back to being a pure telecom company focused on wireless and fiber. The stock has been punished over the past few years for the company’s missteps, and it now trades for an extremely pessimistic valuation.

AT&T expects to generate between $17 billion and $18 billion in free cash flow this year. With a market capitalization of around $157 billion, the stock trades for just 9 times the midpoint of the free-cash-flow guidance. In 2025 and beyond, free-cash-flow growth will be driven by continued growth in the wireless business and growth in the broadband business thanks to the company’s fiber investments. With the media distractions gone, AT&T can fully focus on its core businesses.

AT&T isn’t an exciting stock, but with a beaten-down valuation, investors who have written it off should give it another look.