In The News
AT&T to Buy DirecTV for $48.5 Billion in Move to Expand Clout
AT&T agreed on Sunday to buy the satellite television operator DirecTV for $48.5 billion, trying to tilt the balance of power with media companies as the market for broadband Internet and video shifts.
With the acquisition, AT&T becomes the latest telecommunications giant seeking to establish an even greater reach.
Comcast agreed in February to buy Time Warner Cable for $45 billion, a bid to become the country’s dominant provider of cable TV and high-speed Internet access. And Sprint, which is controlled by the Japanese telecom company SoftBank, has made no secret of its desire to merge with T-Mobile USA, creating a serious rival to Verizon and AT&T.
“The media chessboard is moving more this year than it has in the past decade,” said Richard Greenfield, a media analyst with the brokerage firm BTIG. “You’re seeing major shifts. Everyone is jockeying for position.”
The newest round of consolidation may weigh heavily on the minds of government regulators, who have expressed growing concern that the nation’s television and Internet services are increasingly controlled by just a few corporate behemoths.
For consumers, the acquisition may change little, at least at first, since AT&T and DirecTV share little overlap. AT&T said on Sunday that it planned to bundle its new acquisition’s services with existing offerings like broadband Internet and cellphone service.
To some analysts, AT&T’s latest acquisition seems questionable. The pay television business is considered a mature market whose subscriber growth has slowed sharply in recent years.
Still, the company has been trying to compensate for slowing growth in its own core businesses, including by moving into home security offerings and mobile data for cars.
Randall L. Stephenson, AT&T’s chief executive, said in an interview on Sunday that he had discussed the possibility of buying DirecTV with his counterpart at the satellite TV provider, Mike White, for some time.
By acquiring the country’s biggest satellite television operator, AT&T would gain more clout in negotiating with media companies as it increasingly focuses on video offerings. Through the deal, AT&T would become the country’s second-biggest pay TV provider, behind only 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.
The acquisition would also bring to AT&T DirecTV’s existing content at a time when AT&T has made video services a priority. DirecTV’s offerings include the National Football League’s “Sunday Ticket,” and it owns minority stakes in the Game Show Network and MLB Network.
It would also help get AT&T into new markets like video and data services inside airplanes.
“If you think about what we’re trying to accomplish, we’re trying to get way down the road to get content across multiple devices,” Mr. Stephenson said. “The more we peeled the onion back, frankly the better we felt about this.”
DirecTV would also bolster AT&T’s financial resources as it continues to invest in wireless-broadband capabilities, an effort that is expected to include bidding at least $9 billion for wireless network spectrum in a forthcoming government auction. The satellite TV company generated about $2.6 billion in free cash flow last year. Buying DirecTV would also expand AT&T’s presence in Latin America, where the satellite company already has more than 18 million customers and expects to grow substantially as more households subscribe to pay TV services.
Under the agreement’s terms, AT&T would pay $95 a share in stock and cash — roughly 10 percent higher than DirecTV’s closing stock price on 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 worth about $67.1 billion. Existing DirecTV shareholders would own 15 to 16 percent of the combined company after closing, which is expected in a year’s time.
The deal is the biggest in years for AT&T, which has long looked to acquisitions for growth. It is the largest transaction 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, some analysts believe the company will face less heat from the federal government. By their reckoning, regulators are likely to look favorably upon a deal that creates a bulwark against a strengthened Comcast.
“They want wireless to compete with wires,” Mr. Greenfield, the media analyst, said. “The only way to complete that is to allow these deals to occur.”
AT&T has also learned from the botched deal. It will not have to pay DirecTV a breakup fee if the deal does not go through. It had to pay T-Mobile $6 billion.
Mr. Stephenson, the AT&T chief, argued that the deal should be approved since it would not meaningfully reduce competition in the pay TV industry.
“We became very comfortable that this is a deal that should pass regulatory muster,” he said. Referring to Comcast’s bid for Time Warner Cable, he added, “Our deal is a very different deal.”
At the same time, by moving forward with its DirecTV deal now, AT&T will probably complicate regulatory approvals for the cable television merger, according to several investment bankers.
But it is unclear whether investors and others 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 don’t see it being a long-term proposition.”
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 América Móvil, the telecommunications giant controlled by the billionaire Carlos Slim Helú.
The pace of consolidation, meanwhile, 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 an unacceptable 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.
AT&T’s move also raises questions for the country’s other major satellite television provider, Dish Network. That company’s chief executive, Charles W. Ergen, has made noises about striking acquisitions to become a true broadband service provider, while also hinting that he may be willing to sell.
But AT&T was concerned that buying Dish would invite more regulatory scrutiny because of both its broadband ambitions and its existing trove of wireless spectrum, according to a person briefed on the matter.
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