Merger must-know: Why did AT&T bid to acquire DirecTV?

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Merger must-know: Why did AT&T bid to acquire DirecTV? (Part 1 of 5)

AT&T’s DirecTV merger is one of the biggest mergers in the U.S. communication industry

A few weeks ago, AT&T (T) agreed to buy DirecTV (DTV) for a total valuation of $67 billion. According to the deal, AT&T will pay $95 per share to DirecTV, split between $28.5 in cash and $66.5 in stock. This acquisition is the second-largest acquisition in the U.S. media and telecom industry in the last year, after Verizon (VZ) bought the remaining stake of Verizon Wireless from Vodafone (VOD) for $130 billion, as the chart below shows. The Comcast (CMCSA) and Time Warner Cable (TWC) merger and the Sprint (S) and T-Mobile (TMUS) merger were also big mergers, valued at $45 billion and $32 billion, respectively.

AT&T is the second-largest telecom provider and DirecTV is the second-largest pay-TV provider in the U.S. The merger would make AT&T the country’s second-largest pay-TV provider, behind the combined Comcast–Time Warner Cable. Comcast and AT&T should control more than half of the pay-TV market in the U.S.

How would this deal benefit AT&T?

DirecTV has a total of 38 million pay-TV subscribers, which include 20 million subscribers in the U.S. and 18 million subscribers in Latin America. Buying DirecTV would provide AT&T immediate access to these many pay-TV subscribers. The company could offer subscribers its own wireless and broadband Internet offering through discounted bundled offers. Plus, DirecTV has an extensive distribution network in rural areas, which otherwise would have cost a lot to AT&T in setting up such a system on its own. Getting bigger would also help AT&T have better negotiating power with content providers for licensing deals.

According to AT&T, “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.” DirecTV also has the exclusive pay-TV rights for the NFL Sunday Ticket package. Exclusive rights like these are a major advantage for DirecTV over other cable and satellite providers.

Continue to Part 2

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