By Dana Cimilluca, Shalini Ramachandran and Thomas Gryta
AT&T Inc. is moving quickly to seal a takeover deal with
satellite-TV provider DirecTV, hoping to reach an agreement in as
little as two weeks, 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.
DirecTV's shares were up more than 6%, or $5.34, at $92.50 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.,
communications company in the neighborhood of $50 billion.
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 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 the satellite TV operator is at a
strategic crossroads. The company's 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 Inc. 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
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