Is it about digital or is it the dividends? Experts divided on AT&T’s $48bn deal


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The Independent Online

On the surface, it’s hard to find fault with AT&T’s $48.5bn (£28.8bn) deal to buy DirecTV, America’s biggest satellite TV firm – a move that would give the telecoms giant access to about 40 million digital TV customers throughout the US and Latin America.

The deal, if approved by regulators, would also allow a merged group to deliver content such as video on a number of devices – smartphones, laptops, tablets and TVs. In the industry jargon used by AT&T in its announcement, it “creates a content distribution leader across mobile, video and broadband platforms”.

And with many pay-TV and telecoms markets beginning to mature, making a big bet on services such as internet video and mobile content distribution seems sensible.

The deal would also give AT&T a huge foothold in the fast-growing Latin American market, where DirecTV is the largest pay-TV company.

Analysts, however, disagree on the merits of the merger, with some hailing it as a smart combination at a crucial point in media history, and others claiming it does not make strategic sense.

Some analysts suggest that the biggest motivation for the deal could be that the extra revenue streams would help AT&T meet its hefty annual dividend payments – which, some shareholders worry, it might not otherwise be able to afford for too much longer.

AT&T was the eighth-biggest dividend payer in the world in 2013, according to Henderson Global Investors. Estimates of its 2013 dividend payment average out at more than $9bn.

“This is financial engineering,” Kevin Smithen, an analyst at the banking group Macquarie, said. “It is a transaction that secures the dividend for many years, taking advantage of AT&T’s relatively high valuation and low interest rates to do an accredited acquisition that will bolster its free cash flow.”

AT&T, though, is sticking to its guns on the strategic merits of the deal. “It gives us … the opportunity and the ability to take premium content and deliver premium content over multiple points for the customer, whether it be through a smartphone, through a tablet, or television, or laptop,” AT&T’s chief executive, Randall Stephenson, said.

“This is a unique opportunity that will redefine the video entertainment industry and create a company able to offer new bundles and deliver content to consumers across multiple screens.”

One analyst said the deal was all about giving DirecTV access to broadband.

“When you think about DirecTV, they were missing a very important ingredient as you look into the future of the whole media and telecommunications tech space; they had no broadband,” Rich Greenfield, a media and technology analyst at BTIG, said.

Others said an AT&T deal to buy DirecTV means it is now much less likely to pursue a deal to buy Vodafone in order to expand in Europe.