US telecoms giant AT&T is widely reported to be nearing a deal to acquire local satellite broadcaster DirecTV for close to US$50bn.
The consideration would be largely made up of stock and the companies could agree the merger within the next two…
US telecoms giant AT&T is widely reported to be nearing a deal to acquire local satellite broadcaster DirecTV for close to US$50bn.
The consideration would be largely made up of stock and the companies could agree the merger within the next two weeks.
DirecTV’s stock is currently trading at around US$87 and reports suggest that the parties could do a deal at a price of US$95 per share, which would value DirecTV at more than US$48bn. The price will partly be determined by how much cash AT&T is willing to part with, the reports said.
AT&T is said to be keen to limit its borrowing to protect its credit rating, yet is wary of issuing too much stock due to the future dividend obligations it would be saddled with.
A deal at US$95 per share would represent a premium of more than 22% on DirecTV’s share price prior to 1 May, the day when rumours about talks between the two companies first emerged.
Beyond agreeing on the offer price, the companies also have to discuss a break-up fee. A Reuters report suggested that another point of contention could be finding a role for DirecTV CEO Mike White, while Bloomberg reported that the CEO is set to retire after 2015. Goldman Sachs is advising DirecTV on its options.
A merger between the telco and the DTH firm would create a company with around 25 million pay-TV subscribers; a significant step up from AT&T’s current five million subscriber base through its U-verse service.
AT&T and DirecTV already have a cross-marketing agreement across 22 states, whereby they offer a co-branded version of DirecTV’s television in markets where AT&T offers residential broadband and telephone services.
Should AT&T and DirecTV close a deal it would create a pay-TV provider to rival the size of a combined Comcast/Time Warner Cable, which agreed to merge earlier this year and are set to have 30 million subscribers. A further mega-deal in the offing is Sprint Corp’s potential takeover of telecoms peer T-Mobile US, although this is seen as having the lowest chance of regulatory success out of the three transactions.
Dish a better fit?
One company which looks set to miss out in this wave of consolidation is DirecTV’s main DTH rival, Dish Network. That AT&T is pursuing DirecTV ahead of Dish has been a surprise to some analysts, as in addition to satellite broadcasting Dish also has significant spectrum holdings.
However, DirecTV has 20 million subscribers compared with Dish’s 14 million, and a better credit rating.
New Street Research analyst Jonathan Chaplin was sceptical about the tie-up.
“It brings very little strategic value in our view,” he wrote in a memo to investors.
“We continue to believe Dish would be a far better target for AT&T given Dish’s spectrum position.”
Chaplin suggested that a DirecTV acquisition would do little to help AT&T’s mobile business, whereas a Dish deal would double its wireless capacity.
“Wireless is facing pricing pressure, the threat of a resurgent Sprint at some point, and likely well-funded new entrants from cable – this is the business that AT&T needs to defend,” argued Chaplin.
For AT&T, a move into DTH broadcasting would mark a change in tack given that the operator had been eyeing the European market to capitalise on the growing demand for data services.
However, in March, AT&T’s CEO Randall Stephenson and CFO John Stephens both said that the window to do a wireless deal in Europe may be closing.
