Mega Merger: AT&T to Pay Nearly $50 Billion for DirecTV
NEW YORK (CNNMoney) — AT&T said Sunday that it had agreed to acquire America’s biggest satellite television provider, DirecTV, in a deal worth almost $50 billion.
The boards of the two companies met on Sunday to approve the plan.
“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,” Randall Stephenson, the chief executive of AT&T, said in a statement.
He described DirecTV as the “best option for AT&T because they have the premier brand in pay TV, the best content relationships, and a fast-growing Latin American business.”
AT&T’s existing television service, called U-verse, only has about 5 million subscribers. DirecTV has more than 20 million. Through the acquisition, AT&T will have a stronger hand in shaping the future of television distribution and consumption.
AT&T said as much in its news release about the deal: “This distribution scale will position the company to better meet consumers’ future viewing and programming preferences, whether traditional pay TV, on-demand video services like Netflix or Hulu streamed over a broadband connection (mobile or fixed) or a combination of viewing preferences on any screen.”
Observers have cited DirecTV’s fount of free cash flow — $2.6 billion in 2013 — as another one of the motivations for AT&T to make the acquisition.
AT&T told investors on Sunday that the DirecTV acquisition “provides numerous growth opportunities,” in part by by increasing television revenues.
AT&T will pay $48.5 billion for DirecTV in both stock and cash. It will also assume DirecTV debts, meaning the overall value of the deal exceeds $67 billion.
Media merger season
If approved by regulators, the deal will continue a wave of consolidation in the television and telecommunications industries. Comcast, the nation’s biggest cable provider, is currently awaiting regulatory approval for its plan to merge with Time Warner Cable. And the parent company of wireless provider Sprint, SoftBank, is trying to buy T-Mobile.
If both the AT&T-DirecTV and Comcast-Time Warner Cable deals go through, AT&T and Comcast would together control close to two-thirds of the U.S. pay-TV market. (Comcast declined to comment on the AT&T announcement.)
“It’s kind of an arms race,” Guggenheim Partners analyst Paul Gallant said Sunday after the AT&T announcement. “If regulators decide they’re OK with Comcast-TWC, then AT&T-DirecTV starts to look like a nice counterweight to the bulked-up Comcast.”
Stephenson, of AT&T, had previously called the Comcast-Time Warner Cable combination an “industry redefining deal” that “creates an impressive business.” Now it’s his turn to attempt something similar.
Selling the deal
Before the deal was announced on Sunday afternoon, CNNMoney viewed portions of a internal presentation extolling the virtues of the deal for shareholders of the two companies. The slideshow’s veracity was corroborated by one of the people who prepared it.
The transaction “creates content distribution leader across mobile, video and broadband platforms,” one of the slides of the presentation said.
The presentation used codenames like “Project Star” for the AT&T-DirecTV acquisition. It said that the two companies face “competitive disadvantages over time” and will be better able to compete as a combined entity. For example, DirecTV’s satellites can’t provide the kind of high-speed Internet connections that consumers increasingly demand, but AT&T can.
In a sentence that seemed written for the Washington regulators that will review the deal, the presentation asserted that the combined company will be able to provide Internet access in areas where it currently doesn’t. Blanket access to the Internet has been a priority of the Obama administration.
The presentation predicted that the DirecTV acquisition will “pass muster” with regulators. That is no surprise, since the companies wouldn’t move forward unless they thought it would be approved.
The public interest group Free Press, which has opposed the Comcast-Time Warner Cable combination, said Sunday that it opposed AT&T and DirecTV joining forces. The group’s chief executive, Craig Aaron, said the current cycle of “merger mania” is “about eliminating the last shred of competition in a communications sector that’s already dominated by too few players.”
Other skeptics of cable industry consolidation have said that there is little, if any, reason to expect lower prices for television as a result of the deals.