AT&T is in advanced discussions with DirecTV, the largest US satellite-television provider, over a deal worth almost $50bn that would further shake up the country’s fast-changing pay-TV market.
The two companies have been in on-off discussions for some time, but talks have progressed recently, according to people familiar with the matter, who said a deal was still weeks away.
DirecTV has a market value of $44.5bn but AT&T is discussing a cash and stock bid of between $92 and $95 per share, these people said, implying a value of slightly below $50bn, one of the people said. The structure of the combined company’s management is still under discussion.
A deal is not certain, however. The parties have previously come close to agreeing terms, only for negotiations to break down. Any deal could also face a prolonged battle to convince regulators to allow further consolidation in pay-TV.
The discussions come at a time of acute change in America’s communications market, with Comcast, the country’s largest cable company, in the process of seeking regulatory approval for its $42bn agreed bid for Time Warner Cable, its closest cable rival.
Sprint, the US mobile group controlled by Japan’s SoftBank, has been considering a bid for T-Mobile US, its smaller rival which is controlled by Deutsche Telekom. That bid would also challenge regulators, who are wary of letting a market with four big companies consolidate down to three.
A DirecTV bid would further cool speculation of a bid by AT&T for Vodafone of the UK. Randall Stephenson, AT&T’s chief executive, cautioned in March that “the window may be closing on perhaps owning wireless assets” in Europe.
Acquiring DirecTV would not only give AT&T the second-largest domestic pay-TV business after Comcast, adding 6m AT&T video customers to DirecTV’s base of 20m. Analysts point out that it would also enable AT&T to move video content from its U-verse network on to DirecTV’s satellites, and ratchet up broadband speeds for its customers.
“AT&T’s broadband/wireless assets help address the inability for satellite firms to deliver broadband connectivity, which seems to be increasingly becoming a competitive issue,” said Kannan Venkateshwar of Barclays.
Some analysts had expected AT&T to have shown more interest in acquiring Dish, DirecTV’s US satellite rival, particularly since the Colorado-based company has built up a sizeable wireless spectrum portfolio.
Charlie Ergen, the Dish chairman who has also been seen as a merger candidate for DirecTV, has expressed interest in entering the mobile phone business.
Commenting last week during a call with analysts to discuss Dish’s first-quarter results, Mr Ergen said an AT&T-DirecTV deal made financial sense, if not strategic sense. From a financial standpoint, “they (AT&T) would be crazy not to look at it,” he said.
“We don’t have the kind of money to go outbid Sprint for T-Mobile or outbid AT&T for DirecTV. And so . . . we have to be well positioned,” Mr Ergen said. “Washington will make rules and regulations and merger approvals . . . and they’ll pick winners and losers. And the good news is that the administration and the FCC [Federal Communications Commission] have talked a lot about competition and being in favour of competition.”
DirecTV shares rose 6 per cent to $92.50 in extended trading on Monday. DirecTV and AT&T both declined to comment.
News of AT&T’s renewed interest was reported earlier on Monday by the Wall Street Journal and Bloomberg.
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