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AT&T Fire Sale: (Almost) Everything Must Go to Pay Down Debt

The AT&T rumor mill is in overdrive, as a flurry of recent reports suggest the telecom giant is looking to sell off several of its underperforming assets, including DirecTV, ad-tech unit Xandr and some regional sports networks.

Why is CEO John Stankey holding a garage sale of AT&T assets? Debt — hundreds of billions of dollars in debt. Over the past five years, AT&T has been buying up a handful of businesses with hefty price tags to beef up its portfolio in order to better compete in the media space. 

But those investments weren’t exactly the big-business boost AT&T expected. Instead, it just added to the growing pile of debt at the telecom.

In 2015, AT&T bought DirecTV for $49 billion, or $67 billion including debt. Then in 2018, it bought Time Warner for $85 billion, or a whopping $109 billion including debt.

At the end of last year, AT&T’s total debt stood at a jaw-dropping $163 billion. No wonder it caught the attention of activist hedge fund Elliott Management. The firm put pressure on former CEO Randall Stephenson, and at the end of 2019 he ultimately decided to review underperforming divisions.

Stephenson announced that he would be stepping down from his CEO role in April, and now, successor Stankey has to clean up the mess he inherited.

It won’t be easy. Take DirecTV, for example. It’s a strong free-cash-flow generator and AT&T needs that to pay shareholders hefty dividends. According to the company’s annual report, DirecTV brought in roughly $4 billion a year in free cash flow since its acquisition, for a total of $22 billion as of 2019. 

With cord cutting showing no signs of slowing, DirecTV will just continue to depreciate. And even if AT&T manages to find a buyer, it won’t get nearly as much as it paid. Reports currently value DirecTV anywhere from $20 billion to $30 billion. Xandr is also expected to be sold at a loss.

However, Stankey isn’t willing to sell just anything. AT&T’s Warner Bros. video game unit was potentially up for sale, but AT&T reportedly decided it was too valuable to let go.

The problem is not unique to AT&T. Truth be told, there are other companies in the sector with high debt levels. Verizon had about $111 billion and Comcast had $102 billion at the end of last year. Debt is a growing problem, and Bank of America Global Research estimated U.S. corporate debt stands at a ridiculous $10.5 trillion. 

Even if Stankey makes AT&T’s debt more manageable, he’s just getting started on figuring out the future, which will also involve investing more heavily in businesses with long-term growth potential, such as 5G technology and streaming services. So should he manage to unload everything he has up for sale right now, he’s not out of the woods any time soon.