What The AT&T, DirecTV Deal Means For Consumers

By Liana B. Baker, Soyoung Kim and Marina Lopes

AT&T plans to pay $48.5 billion to buy DirecTV, in the latest sign that the wireless industry and the U.S. television market are set to converge as customers consume more video on their mobile devices.

The deal, announced Sunday, highlights AT&T's (T) pressing need for fresh avenues of growth beyond the maturing U.S. cellular business, which has become increasingly competitive.

The combination with DirecTV (DTV), the No.1 U.S. satellite TV provider with 20 million customers, would beef up Dallas-based AT&T's packages of cellular, broadband, TV and fixed-line phone services.

For DirecTV, the deal will enable it to offer broadband Internet for the first time to its U.S. customers, filling in a gap that had made the company vulnerable to cable rivals, which can provide Internet service through their networks.

"It gives us the parts to fulfill a vision we have had for a couple of years, that is, the opportunity and the ability to take premium content and deliver premium content over multiple points for the customer, whether it be through a smartphone, through a tablet, or television or laptop," said AT&T CEO Randall Stephenson, speaking on a conference call.

Stephenson's counterpart at DirecTV, Mike White, will stay on to run the satellite television business, which will continue to be based outside Los Angeles in El Segundo, California.

AT&T currently offers a video service known as U-Verse and Stephenson said during a conference call the company would continue to offer it after the acquisition is completed. It expects the deal to close in about a year.

AT&T and DirecTV made their announcement just a few months after Comcast (CMCSA) offered $45 billion for Time Warner Cable (TWC), a transaction that would create the leading U.S. cable and broadband Internet powerhouse. The Comcast proposal is now awaiting regulatory approval.

AT&T is offering $95 for each DirecTV share in a combination of stock and cash, a 10 percent premium over Friday's closing price of $86.18. It will finance the cash portion, $28.50 a share, with funds on hand, asset sales and financing already lined up.

The transaction has a total value of $67.1 billion, including the assumption of DirecTV's net debt.

To help its case with regulators, AT&T will sell its roughly 8 percent stake in Carlos Slim's America Movil, worth roughly $5 billion. DirecTV has some 18 million customers throughout Latin America.

Competitive Concerns

The logic behind the long-expected deal has raised some doubts. Some analysts and investors have questioned why AT&T, which is facing slowing growth, would buy DirecTV at a time when growth in U.S. satellite TV subscriptions has stalled. The growth of Web-based video services such as Netflix (NFLX) and Hulu mean that demand for satellite TV will slow further in the coming years.

There are also potential anti-competitive hurdles to clear. AT&T is likely to face questions from regulators about the deal's impact on competition in those areas where its U-verse service now competes with DirecTV in offering television.

AT&T said it expected to be able 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.

Consumer advocates are already putting 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," said Delara Derakhshani, policy counsel for Consumers Union, the advocacy arm of Consumer Reports.

The companies had thought about a combination for years, but discussions only took off in March following the Comcast-Time Warner Cable announcement.

The latest deal will immediately ratchet up the pressure on competitors. In particular, it raises questions about the No. 2 satellite TV operator, Dish Network (DISH) and what it might do. With 14 million subscribers, Dish trails DirecTV and has spent billions for wireless spectrum it has yet to use.

Dish's chief, Charles Ergen, has said that he doesn't have the cash to outbid AT&T for DirecTV. Dish tried to buy DirecTV in 2001 in a deal that was blocked by regulators.

DirecTV is the latest in a string of big takeover targets that AT&T has considered. Those include a failed bid for T-Mobile USA in 2011, as well as a potential takeover of Vodafone.

DirecTV, founded in 1994, has changed hands before. It had been previously owned by Hughes Electronics, which was part of General Electric (GE), Rupert Murdoch's News Corp. (NWS), and its most recent owner Liberty Media (LMCA), which sold its stake in 2009.

Buffett's Position

The deal, which comes after a 25 percent gain in DirecTV's stock price this year that was fueled by takeover speculation, represents a potential win for Warren Buffett's Berkshire Hathaway (BRK-B), the satellite provider's top shareholder.

Goldman Sachs (GS) and Bank of America Merrill Lynch (BAC) acted as financial advisers to DirecTV, and Weil, Gotshal & Manges, Jones Day and Wiltshire & Grannis served as legal advisers.

AT&T, which has an extensive internal M&A team, was also advised by Lazard, and on the legal side, Sullivan & Cromwell, Crowell & Moring, Arnold & Porter, Sidley Austin, Kellogg Huber Hansen Todd Evans & Figel and Gibson Dunn acted as legal advisers to AT&T.

DirecTV has agreed to pay a $1.4 billion breakup fee to AT&T in the event that it pursues another transaction with a higher bidder, the companies confirmed.

AT&T won't have to pay a penalty if regulators veto the deal.

(Additional reporting by Mike Stone; Editing by Steve Orlofsky, Frank McGurty and Matt Driskill.)


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35 Comments

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munchenag

They are both a complete embarrassment to humanity. Greed, censorship, terrible quality, dumb packages, slovenly service with imbecile cost. The entire programming is a bad, sick joke. Comcast included. Now, how about something a bit innovative like a basic $20 subscription and individual channels of choice for the iTunes like $0.99? You bastards! Why does one have to gave an Armenian cooking show just to watch some, actually equally obscure tabloid news.

Here is the deal. In Europe I pay for a complete package DSL+Tel landline with 500 free minutes globally+Who the hell nows how many TV channels with news from all major stations from around the globe, with uncensored CNN, Al Jazeera, RAI, SKY, TVP, and the some 100+ HD movie channels - all for a disturbing monthly fee of $40!

May 19 2014 at 7:58 PM Report abuse rate up rate down Reply
1 reply to munchenag's comment
true_liberal1

Neither Comcast, Dish, nor any of the other providers are responsible for programming. Instead of creating content, these companies simply deliver content.

The reason consumers are unable to pick among a menu of individual channels with each being priced ala carte is because of the content providers. So for example, when ESPN negotiates with Comcast for Comcast to be able to deliver ESPN content to Comcast subscribers, ESPN insists that the contract be based on the number of consumers that subscribe to Comcast, and not the subset of those that might be willing to pay separately for ESPN. Comcast can refuse, but then none of their subscribers are able to receive ESPN, an outcome Comcast deems even worse than the terms proposed by ESPN. And since Comcast must pay ESPN a fee for each Comcast subscriber, they might as well deliver ESPN to every subscriber. This is repeated hundreds of times with hundreds of content providers.

Of course, there are multiple companies trying to disrupt this model. My guess is those like Netflix and their rivals will continue to make inroads. But it's important to recognize the true source of opposition, which isn't the service delivery companies, but rather the content companies.

May 20 2014 at 9:13 AM Report abuse rate up rate down Reply
hymukyjik

Are we watching the death of choice in cable TV and internet service these days? Here's a good idea - ditch them all. Do you really need to play their games? Do you REALLY need 1000 cable TV channels and a home phone line? I ditched my services about 6 months ago. Life is much better cause I'm free from the corporate non-sense and price raising. Not to mention - I save about $150/month!

I use my cheap cell phone for calls and free wifi places for internet. I don't use a lot of electricity. I don't even drive my car a lot ... my gas prices are cheap ($30/month), and my insurance is even cheaper ($25/month from 4AutoInsuranceQuote! ... no GEICO, Progressive, or any big conglomorates here!) I don't have a mortgage, so I don't have to make the banks money with my interest payments. Not being a slave to corporations is very liberating.

May 19 2014 at 4:03 PM Report abuse rate up rate down Reply
IM BACK

Some day there will be only one company that owns every thing

May 19 2014 at 2:11 PM Report abuse +1 rate up rate down Reply
1 reply to IM BACK's comment
true_liberal1

The pace of new business start-ups far exceeds the the number of M&A transactions.

May 20 2014 at 9:02 AM Report abuse rate up rate down Reply
toddisit

Tired of these bs mergers, like these companies need to keep getting bigger and bigger, and more greedy. The government should deny it.

May 19 2014 at 2:01 PM Report abuse -2 rate up rate down Reply
1 reply to toddisit's comment
true_liberal1

You should start a company with the goal of staying as small as you can.

May 20 2014 at 9:03 AM Report abuse +1 rate up rate down Reply
Laura

great now the quality customer service of direct tv is going to crash ATT sucked when we had it.

May 19 2014 at 1:38 PM Report abuse +2 rate up rate down Reply
greenliks

Consumers will benefit...how's that?? by having less money to spend on groceries or just by lightening their wallets month after month by ever rising prices for crap the cable/dish providers bundle together for your enjoyment. These corporations are lazy greedy turds. Instead of being creative or innovative and competitive they just lamely buy out their competition and charge what ever they want .I watch somewhere in the neighborhood of 18 channels yet to get those channels I must also pay for over a hundred others that are useless to me. Here...BUNDLE this you spineless corporate basturds.

May 19 2014 at 1:01 PM Report abuse +1 rate up rate down Reply
lylenpat

Hey, maybe A,T,& T and Direct TV can join with Comcast and Time Warner and charge what ever they like. Does this look like a legal monopoly or what. Better yet, have the government take over all communications and video then we can really get the real news. RIGHT!!!. Hmmmm, does TASK news sound familiar. I hear the beat beat beat of those polished black boots with metal cleats marching ever closer.

May 19 2014 at 12:22 PM Report abuse +1 rate up rate down Reply
janka51

they will just raise phone rates again to cover it , just a bunch of crooks

May 19 2014 at 12:17 PM Report abuse rate up rate down Reply
CAD Atlanta

Where does the money come from to buy Direct TV? From the consumers who have been over charged by AT&T for years. What about the "MA BELL" break up from the 1990s where the government said that AT&T had a monopoly for local service and created the "Baby Bell" companies such as Bell South, Southwest Bell, etc. The money is there for these Bell Companies, but in rural areas, companies like Windstream do not have the same advantage (billions of customers). This will be a 10 year trend. As more people do not have home phones and move to cell phones, the land lines will become a thing of the past. In 20 years, there will be no wired entertainment or communication - it will all be wireless. Don't belive me? 30 years ago, it was predicted that we would be shopping and paying our bills online. Some of the readers of this blog are not even 30 years old, and have no idea of having to use a dial phone nor NOT having a credit card, having to wear seat belts, very few computers, no 3-D theaters and no instant gratification.

May 19 2014 at 11:56 AM Report abuse +1 rate up rate down Reply
1 reply to CAD Atlanta's comment
erinjanespca

I don't have to be 30 to have done those things. Dial Phone, I didn't get a Credit Card until this year even! I'm 23! We had a computer but no internet until I was older and 3-D was blue and red glasses.

Also if AT&T is "overcharging" you, go somewhere else.

May 19 2014 at 12:47 PM Report abuse -1 rate up rate down Reply
James Vergara

AT&T is disgracefully overpriced for their TV service, and now they are going to drag Direct TV, (who's prices weren't that good either) into their overpriced, poor service realm. Beautiful...

May 19 2014 at 11:50 AM Report abuse -1 rate up rate down Reply