Financial web sites were abuzz yesterday with news that AT&T has taken very early steps toward an initial public offering on its DIRECTV Latin America unit. It is way too early to know what this really means, but let’s take it step by step.
Vrio is its name-o
The filing establishes a new company called Vrio Corp. which is intended to hold control over DIRECTV’s businesses in the Caribbean and Latin America. Under the leadership of Mike White, DIRECTV’s Latin American properties experienced massive growth in the 2010s and always seemed to be a dominant part of earnings calls. They’ve been featured less in AT&T’s statements, although they continue to grow where possible.
All about the benjamins
This is first and foremost a financial move, which is why you’re hearing about it more on sites like MarketWatch. AT&T wants to balance out its debt as it continues working toward acquring Time Warner, a project which has taken more time and effort than most analysts expected. According to Variety, this move could net AT&T about $100 million in cash.
How valuable is DIRECTV Latin America?
DIRECTV’s Latin holdings have been a real moneymaker for them for the last decade. Even without the strong push that it had in the pre-merger days, DTVLA grew 9.3% last year. Cord-cutting in these countries has been significantly behind due to low penetration of traditional broadband. Both AT&T and DIRECTV (as a standalone company) have tried to push into broadband in other countries but have seen only limited success.
Another issue to consider with Latin America, especially Venezuela, is the exchange rate which can vary wildly as the unstable economies of these countries take turns for better and worse. In Venezuela especially, there has been a decade-long battle to actually get money out of the country, meaning that any money put in doesn’t flow back to corporate coffers in a predictable way.
If AT&T does plan to spin off its LatAm operations, this could be the perfect time. Keep in mind a deal could take 2-3 years to fully implement — we saw that when AT&T took on DIRECTV — so this would be the perfect time to explore a sale before broadband growth in South America becomes a threat to traditional satellite TV.
But we’re not there yet.
Setting up the IPO is only one step and it doesn’t give us a clear direction of where this will all go. AT&T could have eyes on spinning off DIRECTV LA or they could just be looking for a short-term cash infusion. Regardless of their plans, deals like this would have to pass through not only our Federal Trade Commission and IRS, but the equivalent agencies of every country involved: Brazil, Barbados, Colombia, Curaçao, Ecuador, Trinidad and Tobago, Venezuela, Argentina, Chile, Peru, and Uruguay. There are an absolutely huge number of “moving parts” to a deal like this.
I’m sure we’ll see more about this deal as time goes on but even in a best-case scenario we won’t see a real resolution to this deal until 2022 or so. Given the way that the video market has changed in the last four years, I’m sure that by then everything will look extremely different.
In the meantime, new DIRECTV branding has been spotted in Latin America (all images courtesy iamanedgecutter.com):
You’ll note that the ad still uses the same “4K Ultra HD” badge as is used in the US but that the DIRECTV logo is now considerably different and bears no family tie to AT&T at all. It’s hard to know what to read into that. It could just be a rebranding since the AT&T globe probably doesn’t resonate in Latin America. Until recently the company was still using the pre-merger DIRECTV branding, as shown here:
One thing’s for sure, it’s going to get interesting.