AT&T (T  ) made a deal with private equity company, TPG. The deal calls for AT&T to sell a 30% stake in its video units including DirecTV, AT&T TV, and U-Verse to TPG for $1.8 billion in cash. The deal marks the end of AT&T's ill-fated purchase of DirecTV under former CEO Randall Stephenson.

Given the trend of cord-cutting and numerous customer complaints about the quality of DirecTV's service, AT&T's purchase of DirecTV could go down as one of the worst acquisitions in history. Current CEO John Stankey's move to rid AT&T of DirecTV continues his strategy of streamlining the business and reducing the company's $149 billion debt load. In a sign of the times, AT&T is getting out of the satellite TV business and doubling-down on its streaming venture.

The deal values DirecTV at $16.3 billion which is significantly less than the $48.5 billion that AT&T paid for it in 2015. For AT&T, the deal allows it to focus on the parts of the company that are growing such as HBO Max and its mobile services. The new venture will be known as DirecTV, and it will own and operate AT&T's legacy video business. AT&T's stake in the entity is estimated to be $7.8 billion, including the assumption of $200 million in debt.

It had been widely reported that AT&T was shopping around DirecTV prior to the pandemic but was unhappy with the offers it was receiving. AT&T chose to divest its stake to private equity groups to minimize regulatory concerns. Additionally, by keeping a stake, DirecTV will have a commercial agreement with AT&T to offer bundled services for AT&T's wireless and Internet customers in addition to giving DirecTV subscribers access to HBO Max.

Stock Price Outlook

AT&T's stock has been a major underperformed for many years. Since 2016, the stock is down 37%, while the S&P 500 is nearly up 100% over that same period.

AT&T looks attractive based on traditional valuation metrics such as its PE of 8.6 and 7.4% dividend yield. While it does have a high debt load, its mobile and Internet business is steady cash cows. It also significantly underperformed its peers like Verizon (VZ  ) and Comcast (CMCSA  ). Another strength is HBO Max which seems poised to become the third-largest streaming service.

However, the DirecTV episode explains some of the stock's troubles. The company was attempting to compete with Verizon's and Comcast's triple-play offering, but it ended up with an even bigger headache. It essentially bought DirecTV just as the cord-cutting trend started picking up steam. Additionally, satellite TV was great for rural areas, but this was less necessary due to the availability of mobile and broadband Internet and streaming services.

Looking ahead, the stock is more attractive after this move as it will be leaner and more profitable. Turning around DirecTV was siphoning away attention and resources that should be spent on growing HBO Max and investing in its wireless business.