AT&T has finalized its deal to acquire DirecTV, the nation’s No. 1 satellite TV provider, for $94 per share. The boards of the respective companies reportedly came to terms of the $48.5 billion stock and cash deal over the weekend in a major tie-up creates a pay-TV powerhouse that would have a similar scale and in some ways act as a response to Comcast’s proposed $45B merger with with Time Warner Cable and is just the latest major proposed consolidation in the TV and telecom industries.
AT&T has an existing partnership with the satellite giant to sell its service in areas where it offers broadband but doesn’t offer its U-verse TV service, which has 5.7M subscribers. DirecTV has about 20M subs. The broadband expansion will cover 70M customer locations. Under the terms of the deal DirecTV’s operations will continue to be based in El Segundo, CA.
Deal will also allow AT&T to boost broadband speeds and expand its high speed broadband service to 15M customer locations including rural areas not currently wired, to be completed within four years. DirecTV customers can retain their standalone service packages for three years.
DirecTV stock has been hovering around record highs the past week amid rising rumors that the two sides were “moving quickly” to secure a deal. DirecTV has been mostly mum, though it reportedly hired Goldman Sachs to help evaluate a possible tie-up that some had pegged as high as $50 billion.
The next question for the mega-deal: What will antitrust regulators or the FCC say? Analysts have been mixed on that one, with some saying the Comcast-Time Warner Cable merger has actually softened the ground for other media consolidation efforts. But MoffettNathanson Research’s Craig Moffett notes that Sprint also wants to buy T-Mobile, and “three big media/telecom deals would be a nightmare” in Washington. Consumer response to Comcast-TWC “has been uniformly negative, and we’re only beginning to see Google and Netflix start to rally the troops against it. Add AT&T-for-DirecTV, and creating another 25-million-subscriber-plus Pay TV provider, could be a bridge too far, jeopardizing both deals. A Sprint-for-T-Mobile deal at the same time could very possibly bring all three crashing down.”
Analyst reaction to the deal have been mixed since the first reports surfaced. Brean Capital’s Todd Mitchell says a combination would give AT&T “much needed scale in a post Comcast-[Time Warner Cable] world.” But Guggenheim Securities’ Michael Morris says consolidation is “unlikely in the current environment” because competition “appears to be limiting pricing growth to consumers, likely a positive from a regulatory perspective.”
Wunderlich Securities’ Matthew Harrigan believes an AT&T-DirecTV combo makes sense: A merger would “offer a premium demographic national video solution that supports first to market 4K TV capabilities while allowing AT&T’s U-verse plant to be entirely dedicated to broadband.” (Its systems now allocate 15 Mbps to video and 10 Mbps to Internet.)
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