Merger Deal Worth $67B Confirmed By AT&T And DIRECTV
Lawrence LeBlond for redOrbit.com – Your Universe Online
Nearly three weeks after reports first surfaced that telephony-giant AT&T was mulling over the idea of acquiring satellite television company DIRECTV, the two companies announced in a joint statement on Sunday that they have entered into a “definitive agreement.”
Under the agreement, AT&T will acquire DIRECTV in a stock-and-cash transaction at $95 per share based on AT&T’s closing price Friday. The total transaction value is presumed to be worth about $67.1 billion. The agreement has been unanimously approved by the Boards of Directors of both companies.
The deal would combine the strengths of both companies and create a unique competitor with “unprecedented capabilities in mobility, video and broadband services.”
“DIRECTV is the premier pay TV provider in the United States and Latin America, with a high-quality customer base, the best selection of programming, the best technology for delivering and viewing high-quality video on any device and the best customer satisfaction among major U.S. cable and satellite TV providers. AT&T has a best-in-class nationwide mobile network and a high-speed broadband network that will cover 70 million customer locations with the broadband expansion enabled by this transaction,” investors wrote in an AT&T Newsroom statement.
The combined company will be a leader in mobile, video and broadband distribution, positioning the merged company to more easily meet consumer demand for better viewing and programming preferences, whether it be on traditional pay TV, on-demand services over a broadband connection or a combination of both on any screen.
The deal enables the combined company to offer consumers package deals that include video, high-speed broadband and mobile services using all of its sales channels – AT&T’s 2,300 retail outlets and thousands of authorized dealers and agents of both companies nationwide.
“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 – mobile devices, TVs, laptops, cars and even airplanes. At the same time, it creates immediate and long-term value for our shareholders,” said Randall Stephenson, AT&T Chairman and CEO. “DIRECTV is the best option for us because they have the premier brand in pay TV, the best content relationships, and a fast-growing Latin American business. DIRECTV is a great fit with AT&T and together we’ll be able to enhance innovation and provide customers new competitive choices for what they want in mobile, video and broadband services. We look forward to welcoming DIRECTV’s talented people to the AT&T family.”
“This compelling and complementary combination will bring significant benefits to all consumers, shareholders and DIRECTV employees,” said Mike White, president and CEO of DIRECTV. “U.S. 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, well positioned to meet the evolving video and broadband needs of the 21st century marketplace.”
DIRECTV’s base of operations will remain in El Segundo, California after the closure of the deal.
“Customers will be able to get wireless, voice, data, TV and home security from the same company nationwide,” Roger Entner, an analyst at Recon Analytics, told USA Today’s Roger Yu. “It allows (AT&T) to grow the share of consumers’ spending on telecom.”
Under the deal, DIRECTV shareholders will get $28.50 per share in cash and $66.50 per share worth of AT&T stock. In the stock portion of the deal, they will also receive 1.905 AT&T shares if AT&T’s stock price is under $34.90 at closing or 1.724 AT&T shares if the stock price is above $38.58. If closing price is between those figures, DIRECTV shareholders will receive 1.724 and 1.905 shares of AT&T stock, equal to about $66.50 in value, according to USA Today.
Since the talks of the deal were first leaked back on April 30, DIRECTV shares have climbed 12 percent.
CONCERNS OVER COMPETITION
The logic behind the deal is drawing some concerns over competitiveness in the market.
According to Reuters, some analysts and investors have questioned why AT&T, which itself is facing slowing growth, would buy DIRECTV at a time when US satellite TV subscriptions have also slowed. The demand for web-based video services like Netflix and Hulu mean that satellite TV demand will slow even more in the coming years.
As well, there are a number of potential anti-competitive hurdles that AT&T will need to jump before it can prove the deal’s worth. The telephony will likely draw a face-off with regulators over the deal’s impact on competition in areas where its U-verse service already competes with DIRECTV.
AT&T said the deal is expected 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, Reuters reports.
But the deal is already meeting stiff opposition from consumer advocates, who are putting the pressure on regulators to reject the deal.
“You can’t justify AT&T buying DirecTV by pointing at Comcast’s grab for Time Warner, because neither one is a good deal for consumers,” Delara Derakhshani, policy counsel for Consumers Union, the advocacy arm of Consumer Reports, told Reuters.
AT&T and DIRECTV had been hinting at a potential deal for years, but the discussions only came out once Comcast announced it was looking to acquire Time Warner Cable.
An AT&T-DIRECTV deal would immediately put pressure on the competition, particularly No.2 satellite TV operator Dish Network. With 14 million subscribers, Dish trails DIRECTV and has spent billions for wireless spectrum that it has yet to make use of.
Charles Ergen, Dish Network’s CEO, said his company does not have the cash to outbid AT&T for DIRECTV. It did once try to buy the premier satellite company in 2001, but that deal was blocked by regulators.
If AT&T’s bid to buy DIRECTV gets shot down by regulators it will not have to pay a penalty. However, DIRECTV has agreed to pay a $1.4 billion breakup fee to AT&T in the event it pursues another transaction with a higher bidder.
BENEFITS & COMMITMENTS
However, if the deal does come to a successful close, AT&T promises a number of customer benefits and commitments.
“Together, the companies will be a stronger competitive alternative to cable for consumers wanting a better bundle of top-quality broadband, video and mobile services, as well as a better customer experience and enhanced innovation. Consumers will also benefit from the combined companies’ additional scale in video content distribution across its mobile, video and broadband networks. The combined company will continue to provide the world-class service and best video and entertainment experience for which DIRECTV is known,” said investors.
With a completed transaction, AT&T said it will be able to offer: 15 million customers (mostly in rural areas) more high speed broadband competition, a stand-alone broadband service, nationwide package pricing on DIRECTV, and commitments to the FCC’s Net Neutrality. As well, the deal will not alter AT&T’s plans to participate in the FCC’s planned spectrum auctions due later this year and again in 2015.