With so many transformative, mega-deals being announced this year, it’s not a surprise that AT&T (T) wants a piece of the action. Regulators previously rejected AT&T’s plan to acquire of T-Mobile (TMUS) in 2011 for $39 billion. Now, AT&T has announced its intention to purchase DirecTV (DTV) for just under $49 billion.
But the question is: Will this deal even help AT&T considering that growth in the satellite TV industry is stagnating?
There’s no denying that bundling video, broadband and voice makes for a much stronger competitive service. But Forrester Research’s Jim Nail suggests that AT&T wants something else…
“This is a way for them to get their hands on some cash to help accelerate the build-out that they need to do, to grow their footprint and get the kind of scale where they can compete with those established cable players.”
Let’s look at what else AT&T stands to gain from the merger:
· An additional $2.5-billion annual cash flow.
· 15 million more broadband customers.
· A contract to broadcast NFL Sunday Ticket (generating $1 billion annually).
These benefits may seem attractive, but it’s uncertain just how large the potential synergies could be, to say the least. And if the NFL deal isn’t renewed, AT&T has the option to back out of the deal.
Although, the biggest obstacle for AT&T may be the regulators, once again. This consolidation in the media industry leave five major players, assuming both the Comcast (CMCSA)-Time Warner Cable (TWC) and AT&T-DirecTV deals go through.
Consumers would be left with far fewer choices. For this reason, AT&T’s proposed deal is coming under serious scrutiny.
But that may actually be a blessing in disguise…
Dividend & Income Daily’s Editor-in-Chief, Alan Gula, draws a scary parallel between the DirecTV deal and other mega-deals in the past, which ended horribly.
So, perhaps investors should pray that the U.S. Department of Justice blocks this deal, and in the process saves AT&T from itself so that history doesn’t repeat.
Dividends & Income Daily Research