AT&T Could Strike $50 Billion Deal for DirecTV -- Update

By Dow Jones Business News, 
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AT&T Could Strike $50 Billion Deal for DirecTV -- Update


By Dana Cimilluca, Shalini Ramachandran and Thomas Gryta

AT&T Inc. is moving quickly to seal a takeover of DirecTV that could value the satellite-television provider at some $50 billion, people familiar with the matter said.

The two sides are discussing a deal that would involve a mix of cash and AT&T stock, these people said. Dallas- based AT&T would likely pay a premium to DirecTV's share price Monday, one of the people said. An agreement could be reached in two weeks if not sooner, according to the people.

DirecTV's shares were up 5%, or $4.57, at $91.73 in after-hours trading after finishing down less than 1% at $87.16 in 4 p.m.Nasdaq Stock Market trading on Monday. With an additional premium, a takeover could value the El Segundo, Calif., company in the neighborhood of $50 billion, or $100 a share.

Spokesmen for AT&T and DirecTV declined to comment.

For AT&T, using stock to help pay for such a transaction has the benefit of limiting its borrowings and thus helping protect its credit rating. But the more stock it issues, the greater its dividend obligations, which is another consideration the company is grappling with, some of the people familiar with the matter said.

A deal could boost the flow of cash that AT&T could use to pay its dividend and fund a build out of its broadband Internet infrastructure, analysts have said. It also comes as AT&T increasingly views video--whether via pay TV service or delivered over the Web or its wireless network--as central to its future.

Adding satellite TV capabilities also could allow AT&T to free up valuable bandwidth on its Internet connections to customer homes. Barclays estimates a deal could be financially attractive to AT&T at a price of up to $105 a share, depending on how deeply the companies can cut costs and the mix of stock and debt used to pay for any acquisition.

For DirecTV, a deal comes as its subscriber growth has slowed sharply in recent quarters, reflecting a broader stagnation in the U.S. pay TV market. While cable companies have been able to offset declines in video subscribers by selling broadband, satellite operators can't offer Internet access services at speeds that are competitive with cable and phone companies, due to technological constraints. A tie-up with AT&T would give DirecTV a way out of the broadband dilemma.

The talks come after Comcast Corp. shook up the broader telecom and pay TV industries in February with an agreement to buy Time Warner Cable Inc. for $45 billion, a deal that would create a giant in those markets.

Dish Network Chairman Charlie Ergen sees the logic of his company--the other major competitor in the satellite TV market--merging with DirecTV, but openly declared last week that he can't afford to outbid AT&T. DirecTV and Dish attempted to merge more than a decade ago, a combination that was squashed by regulators.

There is no guarantee AT&T and DirecTV will strike a deal in the timeframe envisioned. The companies have come close to striking a combination before, only to see it fall apart over issues including price, one of the people said.

Write to Dana Cimilluca at dana.cimilluca@wsj.com, Shalini Ramachandran at shalini.ramachandran@wsj.com and Thomas Gryta at thomas.gryta@wsj.com

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This article appears in: Technology

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