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

The Economic Times - - World View -

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.

Com­pet­i­tive Con­cerns

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

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