AT&T hastens US consolidation with DirecTV takeover

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br directv Bloomberg A technician demonstrates DirecTV On Demand features to a customer after installing new satellite television service in Lynwood, California, this month. The planned buyout of DirecTV will give AT&T a satellite television provider to go with its wireless, phone and high-speed internet services. Photo: Bloomberg

New York - AT&T plans to buy DirecTV for $48.5 billion (R502bn), gaining more than 38 million video subscribers in the US and Latin America and stepping up an overhaul of the $110bn US pay-TV industry.

AT&T would pay $95 for each share of DirecTV, split between $28.50 in cash and the equivalent of $66.50 in stock, the companies said on Sunday. That was 10 percent more than DirecTV’s closing price on Friday.

DirecTV rose 0.6 percent to $86.74 in early New York trade yesterday, after closing at $86.18 on Friday. AT&T was up 0.22 percent at $36.74.

Including net debt, the deal values the largest US satellite television company at $67.1bn.

Randall Stephenson, the chief executive of AT&T since 2007, is embarking on the company’s largest takeover in eight years after competitors Comcast and Time Warner Cable announced their own merger, accelerating consolidation across the communications industry.

The purchase will give AT&T a nationwide satellite television provider to combine with its existing packages of wireless, fixed-line phone and high-speed internet services.

The companies expect the deal to close within 12 months, pending regulatory review and approval from DirecTV’s shareholders.

“Strategically, this makes a lot of sense for AT&T,” Jan Dawson at Jackdaw Research said. Gaining a satellite television provider “lets them go national with a video offering that matches their wireless reach”.

DirecTV, which does not have its own phone service or a competitive internet offering, was under pressure to find a partner as more viewers go online for video and the pool of traditional pay-TV customers shrinks in the US.

With the transaction, AT&T said its high-speed broadband network would cover 70 million customer locations.

One reason for the deal was that it would help customers watch television on any device, DirecTV chief executive Mike White said. “Over the past year, things began to change with technologies; AT&T started to be able to offer more broadband and better broadband. With it comes a continuing evolution for mobile video.”

The deal is the third-largest for the communications industry in the past year, ranking after Verizon Communication’s $130bn deal to acquire the rest of Verizon Wireless from Vodafone and the pending $68bn purchase of Time Warner Cable.

Comcast’s plan to acquire Time Warner Cable will create an even bigger provider of both television and internet in the US. In March Stephenson called Comcast’s takeover an “industry-redefining deal”.

One of the main questions about the potential deals is whether regulators will allow them. Comcast’s takeover of Time Warner Cable has not been approved yet. A merger of DirecTV and satellite television rival Dish Network was blocked more than a decade ago.

AT&T, the second-biggest US cellular network, had to abandon the purchase of Deutsche Telekom’s T-Mobile US unit in 2011 in the face of opposition from competition regulators.

Unlike Comcast’s acquisition of Time Warner Cable, AT&T’s purchase of DirecTV will eliminate choice for pay-TV customers in some markets because AT&T’s U-verse video service competes with DirecTV.

“The captains of our communications industry have clearly run out of ideas,” Craig Aaron, the chief executive of advocacy group Free Press, said.

“Instead of innovating and investing in their networks, companies like AT&T and Comcast are simply buying up the competition. These takeovers are expensive, and consumers end up footing the bill for merger mania.” – Bloomberg


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