AT&T is finally getting out of the media business with the sale of DIRECTV

With the sale of a 70% stake in satellite TV provider DIRECTV, the telecom giant AT&T (T 0.59%) eventually he got out of media altogether.

The company has squandered 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 drop out. He followed that deal a few years later with the $100 billion-plus acquisition of Time Warner. The end result of this transaction was epic destruction of shareholder value.

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

On Monday, AT&T announced it would sell its remaining 70 percent stake in DIRECTV to its private equity partner, which will merge the satellite TV provider with rival Dish Network. AT&T will get some extra cash and finally free itself from the media’s misguided ambitions of the past.

An infusion of cash

The deal to sell the remaining DIRECTV stake is complicated and will unfold over several 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 pretax quarterly distributions. Another $5.4 billion in after-tax distributions and other payments will come in 2025, with the remaining $500 million coming in 2029. The deal is expected to close in the second half of 2025.

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

The money could also come in handy as AT&T invests in its fiber network. The company originally planned to reach more than 30 million homes and businesses with its fiber network, but earlier this year it announced it could increase that final number to 45 million locations. Installing fiber is capital intensive, and turning a profit takes time as eligible customers sign up, so unlocking the capital tied up in DIRECTV could help the company reach that larger target.

A cheap stock

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

AT&T expects to generate between $17 billion and $18 billion in free cash flow this year. With a market cap of about $157 billion, the stock trades for just 9 times the midpoint of 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 due to the company’s investments in fiber. Once the media distractions are gone, AT&T can fully focus on its core business.

AT&T isn’t an exciting stock, but with a weakened valuation, investors who wrote it off should give it another look.