According to a report in the Wall Street Journal yesterday, AT&T Inc. (NYSE:T) and DirecTV (NASDAQ:DTV) have picked up their on again, off again romance one more time, as the telecom giant is looking to acquire the satellite TV titan. The sources close to the deal interviewed by the WSJ say the total value of the mega-deal could approach $50 billion.
Analyst commentary
“This is not the first time that AT&T Inc. (NYSE:T) and DirecTV (NASDAQ:DTV) have danced around the fire and thought if they could give it a go,” commented ReconAnalytics analyst Roger Entner.
“They both looked at each other for at least 10 years. Both kind of came to the conclusion that it was in the right environment. It makes a lot of sense to get together,” he said. “But there was never the right regulatory environment for it.”
Entner says that AT&T Inc. (NYSE:T) needs to make a deal to keep up with Comcast given the looming Time-Warner merger, and that DirecTV (NASDAQ:DTV) also needs to make a deal to keep up with the competition. “They both see the Grim Reaper at the horizon. DirecTV hasn’t gone out and bought spectrum. Dish has, so DirecTV needs to find a partner, and AT&T is that partner,” he said.
AT&T buying cash flow
BTIG media and technology analyst Rich Greenfield said he did not see much benefit to AT&T Inc. (NYSE:T) with this deal except for increasing cash flow. “DirecTV is a fundamentally challenging business long term. You are in an environment where the cable pipe is really evolved. It used to be that DirecTV was the market leader. They were technologically superior,” Greenfield commented on CNBC on Tuesday. “That’s simply not true anymore.”
“If you stop growing subscribers and you just harvest the cash,” Greenfield continued, “DirecTV generates a ton of cash. [Even though] it may not be a growth business over the next 10 years.”
AT&T- DirecTV Deal: Regulatory concerns
An AT&T Inc. (NYSE:T) and DirecTV (NASDAQ:DTV) deal is likely to draw nearly as much regulatory scrutiny as that surrounding the proposed Comcast/Time-Warner deal. It will likely take some doing to convince regulators to allow further consolidation in pay TV. Neither AT&T nor DirecTV would offer any comment on reports of their negotiations.
