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AT&T acquiring DirectTV

AT&T acquiring DirectTV

AT&T has announced that they're planning to buy DirectTV. Rumored for weeks, the deal would give AT&T access to 20 million DirectTV customers and, theoretically, make them more competitive with Comcast, which is in the midst of their own merger with Time Warner Cable. What's especially interesting is that AT&T clearly sees this deal as fueling more than simply traditional television service:

The premier pay TV brand with the best content relationships now poised to deliver video to multiple screens – mobile, TV, laptops and more – to meet consumers' future viewing and programming preferences

The deal "implies a total equity value of $48.5 billion and a total transaction value of $67.1 billion" which is a huge chunk of change — the Apple/Beats rumors are for $3.4 billion, a tiny fraction of the amount.

AT&T and DirectTV already work together, so marriage is simply their next step. Regulators still have to approve, of course, but the question for right now is — do you want it? Will a unified AT&T/DirectTV give you better service or less competition?

Source: AT&T

AT&T to Acquire DIRECTV

DALLAS, TEXAS and EL SEGUNDO, CALIF. – May 18, 2014 – AT&T (NYSE:T) and DIRECTV (NASDAQ:DTV) today announced that they have entered into a definitive agreement under which AT&T will acquire DIRECTV in a stock-and-cash transaction for $95 per share based on AT&T's Friday closing price. The agreement has been approved unanimously by the Boards of Directors of both companies.

The transaction combines complementary strengths to create a unique new competitor with unprecedented capabilities in mobility, video and broadband services.

DIRECTV is the premier pay TV provider in the United States and Latin America, with a high-quality customer base, the best selection of programming, the best technology for delivering and viewing high-quality video on any device and the best customer satisfaction among major U.S. cable and satellite TV providers. AT&T has a best-in-class nationwide mobile network and a high-speed broadband network that will cover 70 million customer locations with the broadband expansion enabled by this transaction.

The combined company will be a content distribution leader across mobile, video and broadband platforms. 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.

The transaction enables the combined company to offer consumers bundles that include video, high-speed broadband and mobile services using all of its sales channels -- AT&T's 2,300 retail stores and thousands of authorized dealers and agents of both companies nationwide.

"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. At the same time, it creates immediate and long-term value for our shareholders," said Randall Stephenson, AT&T Chairman and CEO. "DIRECTV is the best option for us because they have the premier brand in pay TV, the best content relationships, and a fast-growing Latin American business. DIRECTV is a great fit with AT&T and together we'll be able to enhance innovation and provide customers new competitive choices for what they want in mobile, video and broadband services. We look forward to welcoming DIRECTV's talented people to the AT&T family."

"This compelling and complementary combination will bring significant benefits to all consumers, shareholders and DIRECTV employees," said Mike White, president and CEO of DIRECTV. "U.S. consumers will have access to a more competitive bundle; shareholders will benefit from the enhanced value of the combined company; and employees will have the advantage of being part of a stronger, more competitive company, well positioned to meet the evolving video and broadband needs of the 21st century marketplace."

DIRECTV has premier content, particularly live sports programming. It has the exclusive pay TV rights to NFL SUNDAY TICKET that provides every out-of-market game, every Sunday afternoon, on TV, laptops and mobile devices. The new AT&T will be better positioned to develop unique content offerings for consumers through, among other initiatives, AT&T's joint venture with The Chernin Group. Today, DIRECTV's content ownership includes ROOT SPORTS Networks and minority stakes in the Game Show Network, MLB Network, NHL Network and the Sundance Channel.

DIRECTV will continue to be headquartered in El Segundo, California, after the deal closes.

Customer Benefits and Commitments, Upon Closing

Together, the companies will be a stronger competitive alternative to cable for consumers wanting a better bundle of top-quality broadband, video and mobile services, as well as a better customer experience and enhanced innovation. Consumers will also benefit from the combined companies' additional scale in video content distribution across its mobile, video and broadband networks. The combined company will continue to provide the world-class service and best video and entertainment experience for which DIRECTV is known.

With the benefits of the transaction, AT&T is able to commit to do the following, when the deal closes:

  • 15 Million Customer Locations Get More High Speed Broadband Competition. AT&T will use the merger synergies to expand its plans to build and enhance high-speed broadband service to 15 million customer locations, mostly in rural areas where AT&T does not provide high-speed broadband service today, utilizing a combination of technologies including fiber to the premises and fixed wireless local loop capabilities. This new commitment, to be completed within four years after close, is on top of the fiber and Project VIP broadband expansion plans AT&T has already announced. Customers will be able to buy broadband service stand-alone or as part of a bundle with other AT&T services.

  • Stand-Alone Broadband. For customers who only want a broadband service and may choose to consume video through an over-the-top (OTT) service like Netflix or Hulu, the combined company will offer stand-alone wireline broadband service at speeds of at least 6 Mbps (where feasible) in areas where AT&T offers wireline IP broadband service today at guaranteed prices for three years after closing.

  • Nationwide Package Pricing on DIRECTV. DIRECTV's TV service will continue to be available on a stand-alone basis at nationwide package prices that are the same for all customers, no matter where they live, for at least three years after closing. Net Neutrality Commitment. Continued commitment for three years after closing to the FCC's Open Internet protections established in 2010, irrespective of whether the FCC re-establishes such protections for other industry participants following the DC Circuit Court of Appeals vacating those rules.

  • Spectrum Auction. The transaction does not alter AT&T's plans to meaningfully participate in the FCC's planned spectrum auctions later this year and in 2015. AT&T intends to bid at least $9 billion in connection with the 2015 incentive auction provided there is sufficient spectrum available in the auction to provide AT&T a viable path to at least a 2x10 MHz nationwide spectrum footprint.

Latin America

DIRECTV's Latin American business is the leading pay TV provider in the region and has more than 18 million subscribers, including all Sky Mexico customers. DIRECTV's satellite platform's broad reach remains advantaged when compared with cable and telco in Latin America. Latin America has an underpenetrated pay TV market (about 40% of households subscribe to pay TV) and a growing middle class, and is DIRECTV's fastest growing customer segment.

Summary Terms of Transaction

DIRECTV shareholders will receive $95.00 per share under the terms of the merger, comprised of $28.50 per share in cash and $66.50 per share in AT&T stock. The stock portion will be subject to a collar such that DIRECTV shareholders will receive 1.905 AT&T shares if AT&T stock price is below $34.90 at closing and 1.724 AT&T shares if AT&T stock price is above $38.58 at closing. If AT&T stock price at closing is between $34.90 and $38.58, DIRECTV shareholders will receive a number of shares between 1.724 and 1.905, equal to $66.50 in value.

This purchase price implies a total equity value of $48.5 billion and a total transaction value of $67.1 billion, including DIRECTV's net debt. This transaction implies an adjusted enterprise value multiple of 7.7 times DIRECTV's 2014 estimated EBITDA. Post-transaction, DIRECTV shareholders will own between 14.5% and 15.8% of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding today.

AT&T intends to finance the cash portion of the transaction through a combination of cash on hand, sale of non-core assets, committed financing facilities and opportunistic debt market transactions.

To facilitate the regulatory approval process in Latin America, AT&T intends to divest its interest in América Móvil. This includes 73 million publicly listed L shares and all of its AA shares. AT&T's designees to the América Móvil Board of Directors will tender their resignations immediately to avoid even the appearance of any conflict.

Transaction Creates Immediate and Long-Term Shareholder Value

AT&T expects the deal to be accretive on a free cash flow per share and adjusted EPS basis within the first 12 months after closing.

The combination provides significant opportunities for operating efficiencies. AT&T expects cost synergies to exceed $1.6 billion on an annual run rate basis by year three after closing. The expected synergies are primarily driven by increased scale in video.

Along with DIRECTV's current strong cash flows, this transaction is expected to support future investment in growth opportunities and shareholder returns.

The combination diversifies AT&T's revenue mix and provides numerous growth opportunities as it dramatically increases video revenues, accelerates broadband growth and significantly expands revenues from outside the United States. Given the structure of this transaction, which includes AT&T stock consideration as part of the deal and the monetization of non-core assets, AT&T expects to continue to maintain the strongest balance sheet in the industry following the transaction close.

AT&T's 2014 guidance for the company remains largely unchanged. However, the company's intention is to divest its interest in América Móvil, which will result in an approximately $0.05 reduction in EPS, as the América Móvil investment will no longer be accounted for under the equity method. Adjusted 2014 EPS growth is now expected to come in at the low-end of the company's mid-single digit guidance.

The merger is subject to approval by DIRECTV shareholders and review by the U.S. Federal Communications Commission, U.S. Department of Justice, a few U.S. states and some Latin American countries. The transaction is expected to close within approximately 12 months.

Conference Call/Webcast

On Monday, May 19, 2014, at 8:30 a.m. ET, AT&T and DIRECTV will host a webcast presentation to discuss the transaction. Links to the webcast and accompanying documents will be available on both AT&T's and DIRECTV's Investor Relations websites.

Rene Ritchie

Editor-in-Chief of iMore, co-host of Iterate, Debug, Review, The TV Show, Vector, ZEN & TECH, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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There are 13 comments. Add yours.

Eric Mason 0321 says:

I am finally "cutting the cord" after 8 years with DirecTV. I like their service/programming but the costs keep rising and I can watch everything online now. It makes no sense to me to pay $100.00 a month for the convenience of watching a show the night it airs where in most cases one can view it online the next day, or at least the following week.

I have AT&T for my carrier on my phone and they have had "ok" service at best in my market. Customer service is horrible which I can see carrying over to DirecTV. DirecTV's customer service in my experience has always been great.

Glad I'm finally getting out, and good timing in my opinion.

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Heisenberg says:

Heck, I watch shows an hour after they air and online. Cable is useless.

XavierMatt says:

Cable is so useless. Agreed.

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Derrick4Real says:

Unfortunately it's very useful if you like sports. I watch a lot of soccer and i even have a directtv log in but watching online even from officials streamers is horrible. The game stutters, the player freezes many times a minute. I cut the cord and this is the big problem. Sports is really the BIGGEST reason i watch lots of tv. And you've got la liga on bein sports, epl on nbc sports, mls on nbc sports and espn and time warner channel, world cup on espn. But even with my directtv id i can't get espn and the nbc client is utter crap.

i try to use internet illegal streams but they are pretty crap quality. good if it's all you got. But NOTHING compares to watching a game in 1080 HD on my 60 inch plasma screen. The other crappy thing is English games come on at 4AM where i live thus if all you can do is watch online you can't dvr them and watch them at a reasonable hour when you wake up so the last month i've had to get up at 4AM to see the crap stream live. It sucks.

Cable's over priced. i wish i could just by the channels i want but it's not gonna happen for a while.

GeniusUnleashed says:

"AT&T acquiring T-Mobile." See how ridiculous that sounds now. A more honest headline, AT&T decides to TRY to acquire DirectTV.

The first makes our country seem unfair. The second shows we live in a democracy. Maybe not important to you, I understand, but kind of important to a few of us who live down here.

Eric Mason 0321 says:

Or you get hung up on trivial things. Your rewording doesn't make any difference and acquiring is what they are doing. Doesn't seem unfair at all. Oh, and I live "down here."

GeniusUnleashed says:

"AT&T (NYSE:T) and DIRECTV (NASDAQ:DTV) today announced that they have entered into a definitive agreement under which AT&T will acquire DIRECTV. . ."

That's a headline that explains what's happening.

Eric Mason 0321 says:

As does AT&T acquiring DirecTV. Simple and to the point.

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GeniusUnleashed says:

Agree to disagree. Your way implies they have control or say over the final outcome, which they don't.

This thread is getting off topic. The reason I bring it up is because ATT acquiring DirectTV shrinks the competition for U-Verse, and the US consumer, which isn't usually a good thing. Letting me know they've reached an agreement now puts the ball in our hands and those of us who are concerned at our shrinking options need to speak to Congress and voice those concerns. It's not a done deal, as they want us to believe.

Dev from tipb says:

I had Uverse for a couple of years, and the customer support was horrendous, making at&t's wireless division seem like a Genius Bar where the associates give free back rubs while magically solving all your problems.

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Iocane Powder says:

It is rumored that AT&T is buying all water rights in California, Nevada, Texas and New York and is making assurances that their pricing and quality of service will be competitive.

Verizon has filed a patent with the USPTO to claim ownership of the processes by which hydrogen is combined with all other elements. They state that they have no intention of using the patent but simply are protecting their interests from competition.

Meanwhile, Congress spends another session debating the "science" behind the global warming hoax and making it easier for people called Corporations to provide them with financial incentives to pass legislation.

It is a good day to be an American!

Derrick4Real says:

Customers lose. No Cable merger has ever resulted in prices going down for customers.