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AT&T and DirecTV have reached an agreement for the telephone company to acquire the satellite TV firm for $95 a share. DirecTV said the deal is valued at $48.5 billion. Including debt, it is worth $67.1 billion, it said.
If government regulators approve the deal, the merged company would serve about 26 million television customers — a smaller number than a combined Comcast-Time Warner Cable, which would boast 30 million TV customers if and when their proposed merger is completed.
“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, in a statement.
The deal comes at a time of pay TV industry consolidation amid a search for economies of scale and rising programming costs for sector players. Earlier this year, the nation’s largest pay TV operator Comcast agreed to acquire Time Warner Cable, the second-largest cable firm. More recently, Charter Communications agreed to acquire some of the systems that Comcast will divest, making Charter the second-largest U.S. cable company.
“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 and competitor Dish Network have in the past tried to merge, but regulators opposed a deal. Wunderlich Securities analyst Matthew Harrigan said before the weekend that the timing for more consolidation seemed ripe.
”Timing for a deal is also favorable as the government reviews Comcast’s proposed acquisition of Time Warner Cable,” he said in a report. “We feel that it is unlikely that the latter deal could pass regulatory muster without the DirecTV deal also being approved.”
Citing the opportunity to bundle TV, broadband, telephony and mobile services, he said that the acquisition “could be a winning transaction for both parties that is indicative of national quad play potential that includes broadband and mobile video.”
Added Harrigan: “AT&T and DirecTV management are quite familiar with each other given their long-standing video relationship, and DirecTV would immediately operate as a freestanding unit within AT&T. [The telecom giant’s] U-verse video homes could likely largely gradually transition to DirecTV.”
With DirecTV CEO Mike White slated for retirement in 2015, Harrigan said that he could leave “after heavy involvement during the transition interregnum.”
Barclays analysts wrote recently: ”Given the possible subscriber reach of the joint entity (26 million versus Comcast/Time Warner’s combined 30 million), opportunity for potential synergies and cross-selling opportunities, we can see why AT&T might be examining a potential acquisition.”
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