Early in the summer, AT&T spent $48.5 billion acquiring DirecTV and shortly afterwards, started mixing up DirecTV’s deals, offering new bundled that it described as the “first-ever nationwide package of TV and wireless services,” with plans costing between $50 to $125 a month, but with discounts for customers using DirecTV and AT&T plans together. Following the deal, AT&T became the world’s largest pay TV operator in the world but today, we have news that AT&T is wiping off more than $1 billion of value. The reason for the drop in value? AT&T is revaluing the Venezuelan assets using a more conservative exchange rate between Venezuela bolivars and US dollars. DirecTV had valued its Venezuelan business at almost $1.2 billion at the end of June 2015 with an exchange rate of 6.3 Venezuela bolivars to $1.
Unfortunately, the Venezuela bolivar has fallen very steeply in value since June and because of this, it has depreciated the value of assets kept in the South American country. The financial press reported at the end of September that AT&T was considering changing its valuation of assets to use a more realistic exchange rate of bolivars to US dollars with the so-called Simadi exchange rate used, which is around 200 bolivars per dollar. The Simadi is an unofficial exchange rate whereby the central bank sells dollars for the Simadi rate, although priority goods use the different exchange rate of 6.3 bolivars a dollar. Venezuela’s currency has been under pressure as the economic worth of the country is depressed because the government will not push through a series of economic reforms. AT&T’s announcement today is that they have switched to the Simadi exchange rate. Back in September, AT&T reported this on the matter: “If AT&T changes to the Simadi exchange rate, it will have a negative impact on reported revenues, operating income and the fair value of our investment in the Venezuelan subsidiary.” However, it appears that the business has had a rethink. The re-valuation of its Venezuelan investment sees the assets written down from around $1.1 billion to just $75 million.
Rebalancing and restructuring efforts such as this are relatively commonplace in industry following a significant acquisition, but in this case, the circumstances were beyond the control or foresight of either AT&T or DirecTV. AT&T are perhaps wise to get this bad news out of the way before their third quarter figures are released next week, which we are expecting to be published in a different format to last time. Now, AT&T is expected to divide the business into four quarters – business services, TV, consumer wireless and international. The last results were divided into wireless and wireline categories.