AT&T-DirecTV merger remolds telecom industry
05/18/2014 11:27 PM
06/03/2014 10:17 AM
AT&T formally agreed Sunday 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.
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.
Under the agreement’s terms, AT&T will pay $95 a share in stock and cash, roughly 10 percent higher than DirecTV’s closing stock price Friday. Including the assumption of DirecTV’s debt, the deal is valued at about $67.1 billion.
The deal is the largest transaction that AT&T has announced since its aborted $39 billion offer for T-Mobile three years ago, a takeover fiercely opposed by antitrust regulators.
Because AT&T and Direc- TV don’t significantly compete in the television market, analysts say, regulators may be more willing to approve the deal this time around. Regulators are considered likely to look favorably upon a deal that creates a bulwark against a strengthened Comcast.
“They want wireless to compete with wires,” Greenfield said.
But it is unclear whether shareholders and analysts will show enthusiasm for the DirecTV takeover, questioning the strategic fit.
“Satellite is kind of a doomed technology,” said Jim Nail, an analyst with Forrester Research. “I don’t see it being a long-term proposition.”
Part of the attraction may be DirecTV’s ample cash flow. It generated about $8 billion in earnings last year.
Much of that will go toward growth, AT&T said, including bidding at least $9 billion for wireless network capacity that the government plans to auction.
By gaining satellite TV, AT&T may also be able to free up capacity on its existing broadband network.
AT&T intends to pay for the deal with cash on hand, debt and the sale of some assets. To help ease regulatory concerns in Latin America, the company plans to sell its roughly 8 percent stake in the telecommunications giant America Movil.
AT&T agreed to several commitments, including:
DirecTV would continue to be offered as a standalone service for three years after the deal’s closing.
AT&T would expand high-speed broadband access to 15 million more homes — beyond the 70 million that could now get AT&T service — within four years.
AT&T would offer standalone broadband service for at least three years after closing, so consumers could consume video from Netflix and other online services, with download speeds of at least 6 megabits per second where feasible.
Meanwhile, the continued consolidation may prompt Sprint and SoftBank to proceed with a bid for T-Mobile, a deal that has already faced vocal opposition from several officials at the Federal Communications Commission. In that view, a merger would shrink an already consolidated industry to just three major players.
But Sprint and SoftBank have argued that such a deal would create more competition in the fast-growing wireless space, creating a more formidable opponent to Verizon and AT&T.
The Associated Press and The Washington Post contributed to this report.
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