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 The deal, announced on Sunday, highlights AT&T's pressing need for
fresh avenues of growth beyond the maturing U.S. cellular business,
which has become increasingly competitive.
The combination with DirecTV, the No.1 U.S. satellite TV provider
with 20 million customers, would beef up Dallas-based AT&T's
packages of cellular, broadband, TV and fixed-line phone services.
For DirecTV, the deal will enable it to offer broadband Internet for
the first time to its U.S. customers, filling in a gap that had made
the company vulnerable to cable rivals, which can provide Internet
service through their networks.
"It gives us the parts to fulfill a vision we have had for a couple
of years, that is, the opportunity and the ability to take premium
content and deliver premium content over multiple points for the
customer, whether it be through a smartphone, through a tablet, or
television or laptop," said AT&T CEO Randall Stephenson, speaking on
a conference call.
Stephenson's counterpart at DirecTV, Mike White, will stay on to run
the satellite television business, which will continue to be based
outside Los Angeles in El Segundo, California.
AT&T currently offers a video service known as U-Verse and
Stephenson said during a conference call the company would continue
to offer it after the acquisition is completed. It expects the deal
to close in about a year.
AT&T and DirecTV made their announcement just a few months after
Comcast Corp offered $45 billion for Time Warner Cable Inc, a
transaction that would create the leading U.S. cable and broadband
Internet powerhouse. The Comcast proposal is now awaiting regulatory
approval.
AT&T is offering $95 per DirecTV share in a combination of stock and
cash, a 10 percent premium over Friday's closing price of $86.18. It
will finance the cash portion, $28.50 per share, with funds on hand,
asset sales and financing already lined up.
The transaction has a total value of $67.1 billion, including the
assumption of DirecTV's net debt.
To help its case with regulators, AT&T will sell its roughly 8
percent stake in Carlos Slim's America Movil, worth roughly $5
billion. DirecTV has some 18 million customers throughout Latin
America.
COMPETITIVE CONCERNS
The logic behind the long-expected deal has raised some doubts. Some
analysts and investors have questioned why AT&T, which is facing
slowing growth, would buy DirecTV at a time when growth in U.S.
satellite TV subscriptions has stalled. The growth of web-based
video services like Netflix and Hulu mean that demand for satellite
TV will slow further in the coming years.
There are also potential anti-competitive hurdles to clear. AT&T is
likely to face questions from regulators about the deal's impact on
competition in those areas where its U-verse service now competes
with DirecTV in offering television.
AT&T said it expected to be able to add 15 million broadband
customers, mostly in rural areas, within four years of the deal
closing, adding to its base of 11 million current Internet
customers.
Consumer advocates are already putting pressure on regulators to
reject the deal.
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"You can't justify AT&T buying DirecTV by pointing at Comcast's grab
for Time Warner, because neither one is a good deal for consumers,"
said Delara Derakhshani, policy counsel for Consumers Union, the
advocacy arm of Consumer Reports.
The companies had thought about a combination for years, but
discussions only took off in March following the Comcast-Time Warner
Cable announcement. The latest deal will immediately ratchet up
the pressure on competitors. In particular, it raises questions
about the No.2 satellite TV operator, Dish Network and what it might
do. With 14 million subscribers, Dish trails DirecTV and has spent
billions for wireless spectrum it has yet to use.
Dish's chief, Charles Ergen, has said that he does not have the cash
to outbid AT&T for DirecTV. Dish tried to buy DirecTV in 2001 in a
deal that was blocked by regulators.
DirecTV is the latest in a string of big takeover targets that AT&T
has considered. Those include a failed bid for T-Mobile USA in 2011,
as well as a potential takeover of Vodafone Plc.
DirecTV, founded in 1994, has changed hands before. It had been
previously owned by Hughes Electronics, which was part of General
Electric, Rupert Murdoch's News Corp, and its most recent owner
Liberty Media, which sold its stake in 2009.
BUFFETT'S POSITION
The deal, which comes after a 25 percent gain in DirecTV's stock
price this year that was fueled by takeover speculation, represents
a potential win for Warren Buffett's Berkshire Hathaway, the
satellite provider's top shareholder.
Goldman, Sachs and Bank of America Merrill Lynch acted as financial
advisers to DirecTV, and Weil, Gotshal & Manges LLP, Jones Day and
Wiltshire & Grannis LLP served as legal advisers.
AT&T, which has an extensive internal M&A team, was also advised by
Lazard, and on the legal side, Sullivan & Cromwell LLP, Crowell &
Moring, Arnold & Porter, Sidley Austin, Kellogg Huber Hansen Todd
Evans & Figel PLC and Gibson Dunn acted as legal advisors to AT&T.
DirecTV has agreed to pay a $1.4 billion breakup fee to AT&T in the
event that it pursues another transaction with a higher bidder, the
companies confirmed.
AT&T will not have to pay a penalty if regulators veto the deal.
(Additional reporting by Mike Stone; Editing by Steve Orlofsky,
Frank McGurty and Matt Driskill)
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