AT and T buys DirecTV for nearly $50 bn

US telecommunications giant AT and T clinched a deal to acquire broadcast satellite service provider DirecTV for nearly $50 billion, the latest in a string of pay TV consolidation moves.

The cash and stock deal, approved unanimously by both boards, will see AT and T purchase DirecTV for $95 per share, for a total equity value of $48.5 billion and a total transaction value of $67.1 billion, including DirecTV’s net debt.

A merger between the two companies would create a potent rival to cable TV giant Comcast, which hopes to expand its coverage with the pending takeover of Time Warner Cable.

DirecTV has about 20 million customers, making it the number-two pay-TV company in the United States. It also has more than 18 million customers in Latin America.

The planned merger is a response to other tie-ups announced three months ago, with top cable operator Comcast planning to buy number two Time Warner Cable for $45.2 billion, or $66.9 billion including debt.

– Redefining the video industry? –

AT and T is already, with Verizon, a big heavyweight in the mobile and landline telephone industry in the United States.

It also provides digital television services via fiber optics television, but had remained until now a rather small actor in that sector, with just 5.7 million subscribers in late March.

The merger with DirecTV would provided AT and T true national reach, making it the number two provider of pay TV in the United States with about 26 million clients and a quarter of the market, compared to Comcast-Time Warner Cable’s 30 million.

AT and T said it would use the merger to expand plans to build and enhance high-speed broadband service to 15 million customer locations, mostly in rural areas.

“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,” AT and T chairman and CEO Randall Stephenson said in a statement.

DirecTV president and CEO Mike White said “US 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.”

DirecTV, however, has suffered in the market in recent years because its land-line competitors like Comcast are better able to bundle high-speed Internet services with television.

At the same time, the takeoff of entertainment delivery on demand via the Internet and wireless devices like smartphones has nearly stalled growth in the traditional pay television industry overall.

– Consumers as losers? –

Some analysts have voiced concern about whether telecommunications and antitrust regulators would or should allow an AT and T-DirecTV deal.

Many pay-TV companies have near-monopoly positions in certain markets around the country, and consolidation could reduce competition.

“Two giant companies will not compete, they will accommodate one another in an industry where prices for consumers are rising at four times the rate of inflation,” market analysis website 24/7 Wall St said, “Get ready to open your wallets.”

It said there was “virtually no chance” US regulators would reject the mergers.

AT and T is hoping for the deal to pay off on the earnings front, however, by a year after the tie-up is completed.

The telecom giant has said it will give up its stake in Mexico’s America Movil, owned by billionaire Carlos Slim, to help smooth the deal’s way forward with regulators in Latin America.

AT and T has had some bad luck with regulators in the past; back in 2011, it was forced to drop plans for a tie-up with T-Mobile USA when it did not get regulators’ green light.

“Compared to a DTV/DISH merger, we believe the regulatory environment might be more favorable, but uncertain, as it would reduce the number of linear Pay-TV providers from four to three for about 25 percent of US households,” said Simon Flannery at MorganStanley.

Some consumer groups had concerns as well.

“These could be the start of a wave of mergers that should put federal regulators on high alert,” said Delara Derakhshani, policy counsel for Consumers Union, the advocacy arm of Consumer Reports.

“AT and T’s takeover of DirecTV is just the latest attempt at consolidation in a marketplace where consumers are already saddled with lousy service and price hikes.”


Please enter your comment!
Please enter your name here