AT&T in Talks to Buy DirecTV for Nearly $50 billion

AT&T is in late talks to buy DirecTV for $100 per share, the equivalent of about $50 billion.

DirecTV and AT&T are planning on a 12-month regulatory process to review the deal, one of the people said. Photo: Stefaan Contreras/Flickr

DirecTV and AT&T are planning on a 12-month regulatory process to review the deal, one of the people said. Photo: Stefaan Contreras/Flickr

Reportedly, AT&T is in active talks to buy satellite TV provider DirecTV for about $50 billion to expand its video offerings and avoid being left out in consolidation hitting the pay-TV industry.

The second-largest wireless operator is discussing an offer in the low- to mid-$90s per share for DirecTV, one of the people familiar with the matter said, compared with the company’s closing price of $87.16 on Monday.

Now with the price of $100 per share, California- based DirecTV is valued at about $50 billion. That’s about 29 percent above DirecTV’s price on April 30, before initial reports of the talks.

The deal price has yet to be finalized and terms could still change, two people familiar with the matter said, adding that discussions are continuing. Other details also have yet to be worked out, such as a break-up fee as well as a potential role for DirecTV Chief Executive Officer Mike White, they said.

DirecTV has the second largest pay-TV subscriber base in the country, with about 20 million users, however it lacks a competitive broadband-Internet offering of its own. AT&T is moving ahead with its own broadband plans, but DirecTV’s satellite-TV business would be a major prize. AT&T, which is currently worth $185 billion, can definitely afford the deal, says the Time.

According to the Bloomberg report, AT&T can afford to add about $16 billion in debt to fund the DirecTV deal without risking a credit-rating downgrade, according to Erich Marriott, an analyst with Bloomberg Industries. The company is rated A3 by Moody’s Investors Service and A- at Standard & Poor’s, both four levels above junk.

“With DirecTV they are getting a national TV presence – they can sell TV with wireless nationwide,” said Roger Entner, an analyst with Recon Analytics, based in Dedham, Massachusetts. “AT&T has increasingly been breaking out of their 22-state landline footprint. They sell wireless, they started selling home security and they could add TV to that package.”

AT&T’s U-Verse, which uses fiber optic lines to move data and video traffic, had 11.3 million customers in the first quarter, including 5.7 million TV subscribers. Its revenue from residential customers rose 4.3% to $5.7 billion in the first quarter, the strongest rate of growth since the introduction of U-verse eight years ago.

“This is not the first time that AT&T and DirecTV have danced around the fire and thought if they could give it a go,” said ReconAnalytics analyst Roger Entner. “They both looked at each other for at least 10 years. Both kind of came to the conclusion that it was in the right environment. It makes a lot of sense to get together, but there was never the right regulatory environment for it.”

A combination of AT&T and DirecTV would create a pay television giant close in size to where Comcast will be if it completes its pending acquisition of Time Warner Cable. U.S. broadband leader Comcast is currently trying to persuade regulators to let it buy Time Warner Cable in a $42 billion deal.

DirecTV had also drawn merger interest from Dish Network Corp. Chairman Charlie Ergen, people with knowledge of the matter said in March. While a DirecTV merger is tempting, the satellite-TV rival is too expensive to pursue, Ergen said last week on a conference call to discuss first-quarter earnings.

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