By Soyoung Kim and Liana B. Baker
NEW YORK (Reuters) - AT&T is close to announcing that it will buy the No. 1 U.S. satellite TV operator DirecTV, according to people familiar with the matter, in the second potentially transformative deal to jolt the U.S. television industry this year.
The No. 2 U.S. cellular operator, which also has some TV and broadband services, has been in active discussions to buy DirecTV for nearly $50 billion, or low to mid-$90s per share, and has been working to finalize a deal in coming weeks, Reuters reported last Monday.
The two companies agreed key terms of the proposed transaction and are expected to announce the deal in days pending final approval from each company's board, one of the people said on Saturday, asking not to be named because the matter is not public.
The takeover would be the latest in a string of mega-acquisitions AT&T has considered. Those include an abortive bid for T-Mobile USA in 2011, as well as a potential takeover of Vodafone Plc, which receded as a possibility after Comcast Corp surprised the industry this year with a $45 billion bid for Time Warner Cable Inc.
A tie-up with DirecTV would expand AT&T's reach and allow it to bundle new services, offering certain customers one-stop shopping for the range of cellular, broadband, TV and fixed line phone services. DirecTV would also produce cash flows that could help support AT&T's dividend.
Goldman Sachs Group and Bank of America Merrill Lynch are advising DirecTV, while Lazard Ltd is advising AT&T, the people said.
A spokeswoman for AT&T declined to comment. A DirecTV spokesman did not immediately respond to a request for comment.
News of an imminent announcement was first reported by BuzzFeed, which said on Saturday that DirecTV Chief Executive Mike White told his senior executives a deal had been reached and would be announced on Sunday.
EXPANDED CUSTOMER BASE
AT&T's acquisition would expand its customer base by 20 million for its U-verse fiber product, which provides television and Internet service.
The transaction may also allow current DirecTV customers to get Internet service where AT&T's U-verse is available. DirecTV's growth has been hurt because unlike cable companies, it is unable to offer broadband alongside its TV subscriber services. AT&T has about 10.4 million U-verse Internet customers in states such as California and Texas.
"AT&T just upped the ante," said Roger Entner, lead analyst at Recon Analytics, referring to the imminent deal. "They have become an even more integrated telecom provider and are no longer tied to their U-Verse footprint."
The transaction raises questions on what DirecTV's rival No. 2 satellite TV operator Dish Network Corp, controlled by chairman Charlie Ergen, may do now that its larger rival, which has long looked like a possible merger partner, is no longer available.
"It increases pressure on Charlie Ergen to do something," Enter said.
AT&T'S PUSH FOR GROWTH
Yet many investors have questioned why AT&T, which is facing slowing growth, would buy DirecTV, which also has more than 18 million customers in Latin America, at a time when U.S. satellite TV subscriptions have flattened.
The growth of web-based television services could mean that demand for satellite slows further in the coming years.
AT&T shares have underperformed the S&P 500 index for the past three years. Like other U.S. wireless operators, the company, whose origins lie in Southwestern Bell, one of the "Baby Bells" that followed the 1984 breakup of the original AT&T, has struggled to find growth areas as the U.S. mobile phone market has become saturated.
AT&T's average revenue per user fell in its most recent earnings report, reflecting a price war that has broken out between T-Mobile and other carriers including T-Mobile and Sprint Corp.
Sprint, controlled by Japan's Softbank, has made no secret of its interest in buying T-Mobile, and the sole hurdle to such a deal is regulators' concern that a T-Mobile/Sprint deal would reduce competition.
DirecTV shares have been up 75 percent over the past three years. Its trailing compound five-year annual growth rate is 10 percent, although that has slowed lately, compared with less than 1 percent for AT&T, according to Thomson Reuters data. DirecTV's top holder is Warren Buffett's Berkshire Hathaway with 34 million shares, a 6.85 percent stake.
REGULATORS EYE CONSOLIDATION
From the point of view of the regulators, the AT&T-DirecTV deal could enjoy a somewhat smoother ride than the Comcast-Time Warner Cable deal, although both are expected to ultimately win approval.
Still, AT&T and DirecTV may face questions about the areas where their TV services now overlap.
Gene Kimmelman, president of the public interest group Public Knowledge, said an AT&T-DirecTV deal would mean a loss of choice in video for about 25 percent of Americans but would allow the companies to compete more effectively with their more powerful rivals.
Still, the increasing proliferation of telecoms and cable deals presents regulators with a conundrum as they seek to preserve competition.
"At some point the government may step back and say, wait a minute, there's too much consolidation in the sector, individually these deals are okay but combined they create a problem," said Blair Levin, a fellow at the Washington-based nonprofit Aspen Institute and former top aide at the FCC. "I don't think we're there yet but it could happen."
(Additional reporting by Nick Carey, Marina Lopes, Alina Selyukh and Diane Bartz; Editing by Frances Kerry)