AT&T to buy DirecTV in $48.5 billion deal

Merger means 26 million customers

DALLAS -- AT&T Inc. on Sunday agreed to buy satellite television provider DirecTV for $48.5 billion, or $95 per share, a move that gives the telecommunications company a larger base of video subscribers and increases its ability to compete against rivals.

AT&T currently offers a high-speed Internet plan in a bundle with DirecTV television service. The acquisition would help it further reap the benefits of that alliance.

AT&T could also use the deal to improve its Internet service by pushing its existing U-verse TV subscribers into DirecTV's video-over-satellite service, freeing up bandwidth on its telecommunications network.

"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&T Chairman and Chief Executive Officer Randall Stephenson said in a statement.

With 5.7 million U-verse TV customers and 20.3 million DirecTV customers in the U.S., the combined AT&T-DirecTV would serve 26 million. That would make it the second-largest pay-TV operator behind a combined Comcast-Time Warner Cable, which would serve 30 million under a $45 billion merger proposed in February.

AT&T and DirecTV expect the deal to close within 12 months. Under the terms agreed to Sunday, DirecTV shareholders will receive $28.50 per share in cash and $66.50 per share in AT&T stock. The total transaction value is $67.1 billion, including DirecTV's net debt.

The deal could face tough scrutiny from the Federal Communications Commission and antitrust regulators at the Justice Department.

Unlike Comcast Corp. and Time Warner Cable -- which don't compete in the same territory -- AT&T's U-verse, offered in 22 states, competes directly for television customers with DirecTV, which is available nationwide.

The combination would reduce consumers' options for pay-television providers from four to three for about 25 percent of U.S. households, said Morgan Stanley analyst Ben Swinburne. Fewer competitors could result in higher prices, a situation that usually gives regulators cause for concern.

The deal is also subject to regulatory approval in Latin America, where DirecTV has more than 18 million customers. To facilitate approval there, AT&T said it will divest its interest in wireless provider America Movil.

Selling the stake in America Movil will reduce AT&T's earnings by about 5 cents a share, according to the statement. AT&T now projects 2014 per-share earnings growth at the low end of its earlier forecast for a "midsingle digit" increase.

America Movil is a direct competitor to DirecTV in countries including Brazil and Colombia. DirecTV's Latin America operation includes Mexico, where it has a minority stake in Sky Mexico, controlled by Grupo Televisa SAB, one of America Movil's biggest rivals.

DirecTV will give AT&T a pay-television 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 18.1 million subscribers in Latin America, including Sky Mexico, of which it owns 41 percent.

Analysts question the strategic benefits of a deal that would give AT&T a larger presence in the mature market for pay television.

Last year, pay-television subscribers in the U.S. fell for the first time, dipping 0.1 percent to 94.6 million, according to Leichtman Research Group.

While AT&T and DirecTV are doing better than cable companies at attracting subscribers, DirecTV's growth in the U.S. has stalled while AT&T is growing the fastest of any provider.

Long term, the deal may offer little help to AT&T as viewers continue to watch more video online.

DirecTV offers neither fixed-line nor mobile Internet service, and its rights to airwave frequencies for satellite television are not the kind that AT&T can use to improve its mobile phone network.

Still, Stephenson has talked about how the growth of online video helps boost demand for its Internet and mobile services. Last month, AT&T entered a joint venture with the Chernin Group to invest in online video services.

DirecTV would continue to be based in El Segundo, Calif., after the merger, the companies said.

Information for this article was contributed by writers from The Associated Press and by Sarah Rabil, Mark Schoifet, Alex Sherman, Scott Moritz, Crayton Harrison, Jeffrey McCracken and Patricia Laya of Bloomberg News.

A Section on 05/19/2014

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