AT&T Dishes Out $48.5 bn to Switch on Video
Its plan to buy DirecTV is the latest sign that wireless industry & TV will converge in US
AT&T plans to pay $48.5 billion to buy DirecTV, in the latest sign that the wireless industry and the US television market are set to converge as customers consume more video on their mobile devices. The deal, announced on Sunday, highlights AT&T’s pressing need for fresh avenues of growth beyond the maturing US cellular business, which has become increasingly competitive. The combination with DirecTV, the No. 1 US satellite TV provider with 20 million customers, would beef up Dallas-based AT&T’s packages of cellular, broadband, TV and fixed-line phone services. For DirecTV, the deal will enable it to offer broadband internet for the first time to its US customers, filling in a gap that had made the company vulnerable to cable rivals, which can provide internet service through their networks.
“It gives us the parts to fulfil a vision we have had for a couple of years, that is, the opportunity and the ability to take premium content and deliver premium content over multiple points for the customer, whether it be through a smartphone, tablet, television or a laptop,” said AT&T CEO Randall Stephenson, speaking on a conference call. Stephenson’s counterpart at DirecTV, Mike White, will stay on to run the satellite television business, which will continue to be based outside Los Angeles in El Segundo, California. AT&T currently offers a video service known as U-Verse and Stephenson said during a conference call the company would continue to offer it after the acquisition is completed. It expects the deal to close in about a year. AT&T and DirecTV made their announcement just a few months after Comcast Corp offered $45 billion for Time Warner Cable, a transaction that would create the leading US cable and broadband internet powerhouse. The Comcast proposal is now awaiting regulatory approval. AT&T is offering $95 per DirecTV share in a combination of stock and cash, a 10% premium over Friday’s closing price of $86.18. It will finance the cash portion, $28.50 per share, with funds on hand, asset sales and financing already lined up. The transaction has a total value of $67.1 billion, including the assumption of DirecTV’s net debt. To help its case with regulators, AT&T will sell its roughly 8% stake in Carlos Slim’s America Movil, worth roughly $5 billion. DirecTV has some 18 million customers in Latin America.
The logic behind the long-expected deal has raised some doubts. Some analysts and investors have questioned why AT&T, which is facing slowing growth, would buy DirecTV at a time when growth in US satellite TV subscriptions has stalled. The growth of web-based video services like Netflix and Hulu mean that demand for satellite TV will slow further in the coming years. There are also potential anticompetitive hurdles to clear. AT&T is likely to face questions from regulators about the deal’s impact on competition in those areas where its U-verse service
Market cap No. of wireless subscribers in US, Puerto Rico and the US Virgin Islands Voice coverage in countries
will beef up AT&T’s packages of cellular, broadband, TV and fixed-line phone services US satellite TV provider
Market cap video customers in US
video subscribers in Latin America
will enable it to offer broadband internet to its US customers now competes with DirecTV in offering television. AT&T said it expected to be able to add 15 million broadband customers, mostly in rural areas, within four years of the deal closing, adding to its base of 11 million current internet customers. The companies had thought about a combination for years, but discussions only took off in March following the Comcast-Time Warner Cable announcement.
Big Win for Buffett
The deal represents a potential win for Warren Buffett’s Berkshire Hathaway, the satellite provider’s top shareholder. DirecTV has agreed to pay a $1.4 billion breakup fee to AT&T in the event that it pursues another transaction with a higher bidder, the companies confirmed. AT&T will not have to pay a penalty if regulators veto the deal.
Randall Stephenson, AT&T CEO