AT&T and DirecTV yesterday (18 May 2014) announced that they have entered into a definitive agreement under which AT&T will acquire the US and Latin American pay-TV provider in a stock-and-cash transaction with a total equity value of USD48.5 billion and a total transaction value of USD67.1 billion, including DirecTV’s net debt. Post-acquisition, DirecTV’s shareholders will own between 14.5% and 15.8% of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding today. The merger has been approved unanimously by the boards of directors of both companies, and is now subject to approval by DirecTV shareholders and review by the US Federal Communications Commission, US Department of Justice, certain US states and some Latin American countries. The transaction is expected to close within approximately twelve months.
Through its subsidiaries and affiliated companies in the US and Latin American countries including Brazil, Mexico, Puerto Rico, Argentina, Colombia, Venezuela and Ecuador, DirecTV provides digital television services to over 20 million customers in the US and more than 18 million customers in Latin America. DirecTV also owns 4G wireless network operating licences in Latin American countries including Brazil (via Sky Brasil, licensed for 4G fixed-wireless broadband in Sao Paulo and Rio de Janeiro) and Colombia (where TeleGeography notes it is expected to launch 4G fixed modem-based broadband services in H2 2014). AT&T says the merger provides significant opportunities for operating efficiencies primarily driven by increased scale in the video segment, and expects cost synergies to exceed USD1.6 billion on an annual run rate basis by year three after closing the deal. The telco adds the combined company will offer US consumers bundles that include video, high speed broadband and mobile services using all of its sales channels, including AT&T’s 2,300 retail stores across the country and thousands of authorised dealers and agents of both companies nationwide.
To facilitate the regulatory approval process for the acquisition of DirecTV units in Latin America, AT&T intends to divest its minority interest in Mexican-based multinational telecoms group America Movil. This includes 73 million publicly listed ‘L’ shares and all of AT&T’s ‘AA’ shares. AT&T’s designees to the America Movil board of directors will tender their resignations immediately to avoid any possible scope for conflicts of interest.
In addition, AT&T stated that with the benefits of the DirecTV transaction, it can commit to service improvements when the deal closes, including: expanding its plans to build and enhance high speed broadband service to 15 million customer locations, mostly in rural areas where AT&T does not yet provide high speed broadband, utilising a combination of technologies including fibre-to-the-premises (FTTP) and fixed wireless local loop capabilities. This new commitment, to be completed within four years after the deal closes, is on top of the fibre and ‘Project VIP’ broadband expansion plans AT&T has already announced. Furthermore, AT&T added that for customers who only want a broadband service and may choose to consume video through an over-the-top (OTT) service like Netflix or Hulu, the combined company will offer standalone wireline broadband speeds of at least 6Mbps (where feasible) in areas where AT&T offers wireline IP broadband service today at guaranteed prices for three years after closure of the deal. DirecTV’s US services will continue to be available on a standalone basis at nationwide package prices that are the same for all customers, for at least three years after closure.