DirecTV Focusing on Growth in Latin America, Not Spinoff, CEO White Says
“It’s a far more compelling idea for our shareholders for us to maximize the potential of that asset,” White, 58, said in an interview today. “I don’t quite understand the logic of taking an asset that has not yet reached its full potential and selling it at a discount in some sort of IPO.”
White, who took over in January, is looking for ways to spur sales as subscriber growth in the U.S. market slows. Last quarter, DirecTV’s Latin America division outperformed analysts’ estimates by adding 121,000 more customers than the U.S. unit and boosting sales 30 percent.
Some investors have speculated that DirecTV could extract more value for the entity through a spinoff or IPO, according to Todd Mitchell, an analyst at Kaufman Bros. in New York. The unit, in the early stages of development, contributed about 13 percent of the company’s operating profit last quarter, while the U.S. unit accounted for more than 80 percent.
There is growth potential in Latin America as most people don’t subscribe to a TV service and there aren’t as many pay-TV competitors as in the U.S., White said.
“For example, in Brazil, which is the largest country down there, pay-TV is in only about 14 percent of households,” White said. “It’s a multiyear growth opportunity for us.”
In contrast, more than 90 percent of U.S. households subscribe to pay-TV. DirecTV operates in several countries in Latin America, including Brazil, Colombia, Argentina, and in Mexico, where it has a minority ownership in Sky Mexico.
DirecTV is considering acquisitions or partnerships with companies that provide Internet services and content in Latin America to exploit its foothold, White said.
The company won’t buy anything that would get in the way of its share buyback plans, he said. In addition to repurchasing stock, DirecTV is considering paying a dividend, White said. The company generated more than $1 billion in free cash flow last quarter, compared with $2.4 billion in all of 2009.
“Right now you’ve got a very strong cash entity in North America and that is providing you with the free cash flow to shrink your equity base,” said Mitchell. “Latin America is your growth vehicle.”
As long as Latin America isn’t dilutive to free cash flow, the company’s better off keeping it, he said. In five to 10 years, the Latin America business could be bigger than the U.S. unit, Mitchell said.
The Latin American unit might be an impediment to an acquisition of DirecTV by a company interested in its U.S. business. Analysts including Mitchell have said that a U.S. phone company such as AT&T Inc. or Verizon Communications Inc. could potentially buy DirecTV for its TV product.
“I don’t think that any one of the telcos would want to own the Latin American assets, but you could always break them up, sell the assets and harvest the proceeds,” Mitchell said.
White declined to comment on the possibility of a phone company buyout, only saying he’s focused on developing his own corporate strategy and “selling the company is not a strategy.”
DirecTV, based in El Segundo, California, gained 95 cents to $35.89 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has climbed 7.6 percent this year.
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