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AT&T has agreed to acquire DirecTV, the largest U.S. satellite-TV provider, for $48.5 billion, adding video subscribers as the biggest competitors in the pay-TV industry bulk up.
AT&T will pay $95 for each share of DirecTV, with $28.50 being paid in cash and the equivalent of $66.50 paid in stock, the companies said Sunday in a statement. That's a 10% premium to DirecTV's closing price on Friday. The agreement was approved by the boards of both companies and is expected to close within 12 months. To help with regulatory approval in Latin America, AT&T said it plans to divest its 8% stake in America Movil SAB.
The purchase gives AT&T a national satellite-TV provider to combine with its U.S. wireless service and phone and high-speed internet offerings. AT&T CEO Randall Stephenson is using deals to get bigger as competitors Comcast and Time Warner Cable plan their own merger and as consolidation accelerates across the communications industry.
"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," Mr. Stephenson said in the statement. "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, which doesn't have its own phone service or a competitive internet offering, was under rising pressure to find a partner as more viewers go online for video and the pool of traditional pay-TV customers shrinks in the U.S.
With the transaction, AT&T said its mobile network and high-speed broadband network will cover 70 million customer locations.
DirecTV will give AT&T a pay-TV business that's expanding in Latin America and that's getting U.S. customers to pay increasingly higher monthly bills. DirecTV's exclusive content includes the National Football League Sunday Ticket package and products such as Genie, a multiroom digital video recorder. DirecTV has 20.3 million U.S. customers, while AT&T's U-Verse TV service had about 5.7 million customers at the end of the first quarter.
DirecTV has 18.1 million subscribers in Latin America, including Sky Mexico, of which it owns 41 percent.
DirecTV will still be based in El Segundo, Calif., after the deal closes and its service will be available on a standalone basis for at least three years after the acquisition closes.
Comcast's plan to acquire Time Warner Cable will create an even bigger provider of both TV and internet in the U.S. In March, AT&T's Mr. Stephenson called the Time Warner Cable takeover an "industry-redefining deal."
One of the main questions about the potential deals, however, is whether regulators will allow them. Comcast's takeover of Time Warner Cable hasn't been approved yet. A merger of DirecTV and satellite-TV rival Dish Network Corp. was blocked more than a decade ago. AT&T, the second-biggest U.S. mobile-phone carrier, had to abandon a purchase of Deutsche Telekom AG's T-Mobile U.S. unit in 2011 in the face of antitrust opposition.
Unlike Comcast's acquisition of Time Warner Cable, AT&T's purchase of DirecTV would eliminate a choice for pay-TV customers in some markets because AT&T's U-verse landline video service competes with DirecTV.
The companies said the deal will add to free cash flow and earnings per share within 12 months of closing, and cost synergies will top $1.6 billion on an annual basis.
With its shares up 25% this year to $86.18, DirecTV had a market value of about $43 billion on May 16. Including net debt, the transaction is valued at $67.1 billion. AT&T plans to finance the cash portion of the deal with cash on hand, the sale of non-core assets, committed financing facilities and the debt market.
The transaction implies an adjusted enterprise value multiple of 7.7 times DirecTV's 2014 estimated earnings before interest, taxes, depreciation and amortization, according to the statement.
AT&T had a market value of about $191 billion as of May 16 and had net debt of about $76 billion at the end of March.
~ Bloomberg News ~