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AT&T Gambles on DirecTV

AT&T Gambles on DirecTV

AT&T's acquisition of DirecTV would make it a much bigger company, but would it become a much better company as well? Not necessarily. "The deal marginally augments the value of the consumer wireline business," said analyst Jonathan Chaplin. "However, this business is in decent shape today ... . The business most at risk is wireless, and this deal does little if anything for wireless."

By Rachelle Dragani E-Commerce Times ECT News Network
05/20/14 11:38 AM PT

AT&T on Sunday announced it had agreed to acquire DirecTV in order to expand its consumer offerings across additional platforms and better compete in the ever-evolving telecom industry.

The merger of the U.S.' second-largest wireless provider and second-largest pay-TV company would be worth about US$48.5 billion. With the inclusion of DirecTV's net debt, the total transaction value would rise to $67.1 billion. AT&T will pay $95 -- $28.50 in cash and $66.50 in stock -- for each share of DirecTV, about 10 percent above DirecTV's closing price last week.

Major Expansion

AT&T pointed to DirecTV's brand recognition, its content relationships and its growing business in Latin America as reasons the company would be a good partner. With DirecTV's offerings, AT&T said it would be able to expand its broadband offerings to 70 million locations, especially in rural areas, and be better equipped to manage customer demands for content on a variety of platforms.

The acquisition is the latest example of consolidation within the telecom industry. Comcast recently announced its $45.2 billion deal with Time Warner Cable that, if approved, would create the U.S.' largest television and Internet provider.

Both deals face regulatory hurdles. AT&T's acquisition must be approved by the FCC, the Department of Justice, a few U.S. states and some Latin American countries, a process that AT&T says should be able to close within 12 months.

Good Move?

The rewards AT&T may reap for the billions it intends to shell out for DirecTV are unclear, said Jonathan Chaplin, analyst at New Street Research.

"The deal marginally augments the value of the consumer wireline business," he told the E-Commerce Times. "However, this business is in decent shape today and accounts for just 15 percent of AT&T's value. The business most at risk is wireless, and this deal does little if anything for wireless."

What AT&T really needs from this merger is better negotiating power, Chaplin said. A bigger, more powerful company has more leverage when trying to navigate the content deals that are increasingly important in a media industry full of digital entertainment options.

"AT&T could have acquired all the rights they wanted on a standalone basis, and it is not clear that AT&T will get a significantly better rate on over-the-top content rights because of DirecTV's scale," he added.

Industry Consolidation

Regardless of how the deal works out for AT&T, the move is one more indication that companies within the telecom industry are moving toward consolidation. Federal regulators now have their hands full when considering mergers.

That trend won't end with AT&T's acquisition, said tech analyst Jeff Kagan. In addition to the pending Comcast-TWC deal, SoftBank, which recently acquired Sprint, also is considering a bid for T-Mobile.

"We are entering the next era of consolidation," Kagan told the E-Commerce Times. "We have seen this happen several times over the last several decades. This wave of mergers is part of a longer-term process of reinventing the industry. I definitely think we will see more mergers announced in coming months and quarters. There are still plenty of large companies who want to get larger."


Rachelle Dragani is a freelance reporter based in Brooklyn, NY. She enjoys staying on top of e-commerce deals, reporting on what new gadget is coming your way, and keeping tabs on anyone trying to hack into your info. Feel free to e-mail her at rachelle.dragani@newsroom.ectnews.com. You can also connect with her on Google+.


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