AT&T said to be in talks to acquire DirecTV

Bloomberg NewsMay 13, 2014 

— AT&T, joining the ranks of U.S. TV, Internet and wireless providers racing to consolidate, is in advanced talks to acquire DirecTV for about $50 billion, according to people familiar with the matter.

Under the plan being discussed, management of DirecTV, the largest U.S. satellite-TV provider, will continue to run the company as a unit of AT&T, said the people, asking not to be named because the information is private. DirecTV Chief Executive Officer Mike White is likely to retire after 2015, the people said.

The purchase would give AT&T a national satellite-TV provider to combine with its wireless, phone and high-speed broadband Internet services as competition ramps up.

The pool of pay-TV customers is peaking in the United States because viewers are increasingly watching video online, and the combination would keep DirecTV from being on its own with just a TV offering and no competitive Internet package.

“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, Mass. “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 would be getting a pay-TV business that’s expanding in Latin America and generating higher monthly bills from U.S. customers. DirecTV’s exclusive content includes the National Football League Sunday Ticket package and products such as Genie, a multiroom digital video recorder.

Comcast Corp.’s plan to acquire Time Warner Cable – to create an even bigger provider of both TV and Internet in the U.S. – is accelerating the drive for consolidation in the rest of the industry. In March, AT&T CEO Randall Stephenson called the Time Warner Cable takeover an “industry-redefining deal.”

The question with all of these potential tie-ups is whether regulators will allow them. Comcast’s takeover of Time Warner Cable hasn’t been approved yet. A merger of DirecTV and Dish Network Corp. was blocked more than a decade ago, and AT&T had to abandon a purchase of T-Mobile several years ago in the face of antitrust opposition.

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

“If regulators let Comcast buy Time Warner Cable, there’s no reason they wouldn’t let AT&T buy DirecTV,” Entner said. “They have to see it as part of a holistic market.”

Getting ownership of DirecTV’s Latin American units would cause a conflict for AT&T, which holds an 8 percent stake in America Movil – a direct competitor to DirecTV in countries including Brazil and Colombia. DirecTV’s Latin America operation includes Mexico, where it has a minority stake in Sky Mexico, controlled by Grupo Televisa SAB, one of America Movil’s biggest rivals.

Darris Gringeri, a DirecTV spokesman, declined to comment, as did Brad Burns, an AT&T spokesman. The Wall Street Journal reported earlier that AT&T is planning a stock and cash bid for DirecTV, without specifying the price.

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.

That implies that AT&T will need to offer a significant portion of stock to fund the $50 billion acquisition. The company has about $3.6 billion of cash and near-cash items and two revolving credit agreements with a combined $8 billion available, according to a regulatory filing.

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