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AT&T locks up DirecTV for $48.5 billion

Mon, 05/19/2014 - 12:03pm
Mike Robuck

AT&T announced on Sunday that it would by DirecTV for $48.5 billion in cash and stock, which figures out to be $95 per share.

The deal would give AT&T 26 million video subscriber and make it the second-largest pay TV provider behind the combined Comcast/Time Warner Cable entity that would service 30 million subscribers under the $45 billion merger that was announced in February

AT&T and DirecTV have danced the merger dance before, but discussions reportedly picked up in March after Comcast and Time Warner Cable made their announcement. The AT&T/DirecTV rumor mill has been running hot and heavy this month with The Wall Street Journal reporting last week that an announcement would be made on Sunday.

For now, AT&T and DirecTV join Time Warner Cable and Comcast in working their respective ways through the regulatory approval process. Since cable operators don’t compete against each other, Comcast and Time Warner Cable can claim that their deal isn’t anti-competitive. Pairing AT&T with DirecTV would cut the number of video providers from four to three for about 25 percent of the households across the nation.

While AT&T is the largest mobile operator in the nation, DirecTV is the largest satellite video provider, but both are faced with declining growth opportunities and maturing markets. AT&T is faced with increased competition in the wireless space, and its video footprint currently serves just 25 percent of the nation. Buying DirecTV would put AT&T into more markets across the country without the costly fiber build out, but that’s balanced against the fact that the traditional video market has matured and faces increased competition from Internet providers.

Under the terms of the deal, which could close over the next 12 months, DirecTV shareholders would receive $28.50 per share in cash and $66.50 per share in AT&T stock. The total transaction value is $67.1 billion, including DirecTV's net debt. The companies said they could reach $1.6 billion in annual cost savings.

"This is a unique opportunity that will redefine the video entertainment industry and create a company able to offer new bundles and deliver content to consumers across multiple screens – mobile devices, TVs, laptops, cars and even airplanes. At the same time, it creates immediate and long-term value for our shareholders,” said AT&T Chairman and CEO Randall Stephenson. “DirecTV is the best option for us because they have the premier brand in pay TV, the best content relationships, and a fast-growing Latin American business. DirecTV is a great fit with AT&T and together we’ll be able to enhance innovation and provide customers new competitive choices for what they want in mobile, video and broadband services. We look forward to welcoming DirecTV’s talented people to the AT&T family.”

DirecTV has been somewhat hamstrung by its lack of a compelling data service. If the deal passes regulatory muster, the two companies could offer various bundles that cable operators can’t match on the voice side. DirecTV’s deal for NFL Sunday Ticket is set to expire at the end of the upcoming season, but DirecTV has said it expects the popular offering will be renewed.

“Since we compete with U-verse, I am interested in whether AT&T will be offering the DirecTV exclusives such as NFL football to their landline customers,” wrote Buckeye CableSystems CTO Joe Jensen in an email to CED this morning. “I am also interested in how this acquisition will position AT&T relative to an integrated solution. Several years ago, there was a lot of talk around supplementing a satellite service like DirecTV with high-speed data to expand beyond VOD. Where do they plan to take the technology?  I assume there is some overlap of customer between the two companies.

“How will the inclusion of DirecTV influence the direction of U-verse and the migration to fiber and/or vectored DSL supporting theoretical speeds of up to 100 Mbps? It will be interesting.”

If the deal is completed, DirecTV subscribers could still get their video service on a standalone basis for the next three years while a separate standalone data service with fixed prices would be offered over the same time frame.

“This compelling and complementary combination will bring significant benefits to all consumers, shareholders and DirecTV employees,” said DirecTV CEO Mike White. "U.S. consumers will have access to a more competitive bundle; shareholders will benefit from the enhanced value of the combined company; and employees will have the advantage of being part of a stronger, more competitive company, well positioned to meet the evolving video and broadband needs of the 21st century marketplace.”

Over the course of a few years, AT&T said of more of DirecTV’s video content would be available on AT&T subscribers’ mobile devices, as well as streamed to cars and airplanes.

Dallas-based AT&T said it would provide broadband services to more than 15 million customers, with a large chunk in rural areas, over the next four years. That data expansion would give AT&T a total of 70 milling subscribers.

While AT&T and DirecTV have offered some plans that included DirecTV’s service, customers have received two separate bills. A combined AT&T/DirecTV could bundle the satellite provider’s 285 video channels with AT&T’s data and wireless service.

For at least three years, AT&T said it would abide by the Federal open Internet rules despite the recent activity in striking down the net neutrality provisions.

If the deal passes, DirecTV would continue to be based in El Segundo, California. In order to ease regulatory concerns, AT&T said it would sell its 8 percent stake America Movil, which would be worth roughly $5 billion.

The Associated Press contributed to this article.

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