May 19, 2014
AT&T formally agreed yesterday to buy DirecTV for about $48 billion, striking a merger that will further reshape how Americans pay for television and connect to the Internet.
It will join a growing list of telecommunications giants looking to consolidate their industry, creating bigger national giants as they adapt to the shifts in broadband and video access.
Already, Comcast has bid to solidify itself as one of the dominant high-speed Internet providers by seeking to buy Time Warner Cable for $45 billion. And Sprint, which is controlled by the Japanese telecom company SoftBank, has made no secret of its desire to merge with T-Mobile USA.
"The media chessboard is moving more this year than it has in the past decade," said Richard Greenfield, an analyst with BTIG. "You're seeing major shifts. Everyone is jockeying for position."
By acquiring the country's biggest satellite-television operator, AT&T will help bolster its competitive position against Comcast. Though pay television is considered a mature market whose subscriber growth has slowed dramatically in recent years, the business nonetheless generates billions of dollars in cash.
Through the acquisition, AT&T will transform itself from a relatively small player in the sector to the second-biggest provider, coming in second only to Comcast. AT&T has about 5.7 million TV customers through its U-verse service, while the satellite TV operator has about 20.3 million customers in the United States.
AT&T will pay $95 a share in stock and cash, roughly 10 percent higher than DirecTV's closing stock price Friday and about 30 percent higher than where its shares were trading before word of a potential transaction began to emerge.
Including the assumption of DirecTV's debt, the deal is valued at about $67.1 billion. Existing DirecTV shareholders would own about 15-16 percent of the combined company after closing, which is expected in a year's time.
AT&T has long looked to acquisitions for growth. It is the largest transaction that the company has announced since its aborted $39 billion offer for T-Mobile three years ago, a takeover fiercely opposed by antitrust regulators because it would have cut down on the number of wireless phone-service providers.
This time around, the company is likely to face less heat from the federal government. Regulators are considered likely to look favorably upon a deal that creates a bulwark against Comcast.
"They want wireless to compete with wires," Greenfield said. "The only way to complete that is to allow these deals to occur."
And at the same time, by moving forward with its DirecTV deal now, AT&T will likely complicate regulatory approvals for the cable-television merger, according to several investment bankers.
But it is unclear whether shareholders and analysts will show enthusiasm for the DirecTV takeover, questioning the strategic fit.
"When I first heard the news, I was scratching my head," said Jim Nail, an analyst with Forrester Research. "Satellite is kind of a doomed technology. I donít see it being a long-term proposition."
Part of the attraction might be DirecTV's ample cash flow. While its business has shown little growth in recent years, it generated about $8 billion in earnings last year. Much of that will go toward future investments in growth, AT&T said, including bidding at least $9 billion for wireless-network capacity that the government plans to auction off soon.
By gaining satellite TV, AT&T also might be able to free up capacity on its existing broadband network.
The acquisition also will add DirecTV's existing content at a time when AT&T has made video services a priority. The satellite TV company's offerings include the National Football League's Sunday Ticket, and it owns minority stakes in networks such as the Game Show Network, MLB Network and the Sundance Channel.
Buying DirecTV also will expand AT&T's presence in Latin America, where DirecTV has 18 million customers. - The New York Times
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