The media and telecom company said Wednesday that it is selling its wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands for $1.95 billion as it pays down debt from its blockbuster acquisition of Time Warner this year.
The sale brings the company closer to its 2019 debt-reduction target. Once that level is reached, management has indicated, AT&T could channel excess free cash flow after dividends into share buybacks.
Liberty Latin America
(LILA) is acquiring AT&T’s 1.1 million wireless customers in the U.S. territories, associated network assets including spectrum and real estate, and 1,300 current AT&T employees. The companies expect the cash deal to close within nine months after a regulatory review, they said on Wednesday morning.
Liberty Latin America is a Nasdaq-listed telecom company with operations in Chile, the Caribbean, and elsewhere in the region. It had $3.8 billion in revenues over the past year. AT&T will still operate its DirecTV unit in Puerto Rico and it will continue to build its FirstNet first responders’ network alongside Liberty Latin America.
“The combination of AT&T’s leading mobile and wired businesses with Liberty Puerto Rico’s leading high-speed broadband and TV business will create a strong and competitive integrated communications player,” Liberty Latin America CEO Balan Nair said in the deal announcement.
AT&T stock (T) rose 0.2% in Wednesday morning trading, versus a 0.7% gain for the
Liberty Latin America stock was up more than 3%.
AT&T’s goal has been to pay down as much as $20 billion in debt this year, after significantly increasing its borrowings to acquire Time Warner for $106 billion, including debt, last year. The transaction closed this year.
Wednesday’s announcement marks the latest of several sales of so-called peripheral assets this year, bringing the total announced to about $11 billion. Previous divestments including selling its minority stake in streaming service Hulu to Walt Disney (DIS), as well as sales of real estate. The activist investor Elliott Management recently became involved with AT&T, and has pushed the company to consider spinning off more of its portfolio that isn’t core to its wireless business.
“This transaction is a result of our ongoing strategic review of our balance sheet and assets to identify opportunities for monetization,” said AT&T CFO John Stephens in the announcement.
The company has used both asset sales and free cash flow after dividends to repay its borrowings. AT&T management recently said that the company is ahead of schedule as it works toward meeting its year-end target for the ratio of net debt to earnings before interest, taxes, depreciation, and amortization, or Ebitda.
Excess cash flow could be channeled into repurchasing shares toward the end of this year, management has said.
“We view the deal positively for T, who will likely use proceeds to continue its deleveraging efforts but also teased a share buyback is in play for Q4 2019,” wrote Wells Fargo analyst Jennifer Fritzsche in a note to clients on Wednesday morning. “We believe AT&T’s confidence in reaching its ‘2.5x net leverage range’ target by YE2019 has given the company optionality to pursue share buybacks in Q4.”
An announcement regarding share-repurchase plans may come when AT&T reports its third-quarter earnings on Oct. 23.
Write to Nicholas Jasinski at email@example.com