US operator AT&T announced a deal to spin off its DirecTV, AT&T TV and U-verse video services into a new company co-owned by investment group TPG Capital, in a move which values the business at $16.25 billion.

Under the terms of the deal, TPG Capital will pay $1.8 billion for a 30 per cent stake in the new company, which will use the DirecTV moniker and be led by the current head of AT&T’s US video unit, Bill Morrow. AT&T will hold a 70 per cent stake in exchange for contributing its US video services.

A board comprised of Morrow and two representatives each from AT&T and TPG Capital will govern the new company.

The deal is expected to close in 2H 2021, after which AT&T said it expects the new company to pay it $7.6 billion in cash and assume $200 million of existing DirecTV debt. Funds received from the deal will be used to pay down the operator’s debt.

A commercial agreement between AT&T and the new company will allow the operator to continue bundling video services with its mobile and fixed broadband products.

AT&T CEO John Stankey stated “TPG is the right partner for this transaction and creating a new entity is the right way to structure and manage the video business for optimum value creation.”

The move follows months of rumours AT&T was exploring a sale of its ailing video unit.

AT&T bought DirecTV for $49 billion in 2015. In January, the operator revealed it recorded a $15.5 billion charge in Q4 2020 related to the reassessment of the value of its video business.