AT&T Seeks to Redefine its Entertainment Offerings with $67B DirecTV Deal

NEW YORK (The Deal) -- AT&T (T) CEO Randall Stephenson touted the benefits of adding satellite TV to the telecom's portfolio of services, in a Monday, May 19, call announcing the purchase of DirecTV (DTV) for $67.1 billion, including debt.

AT&T would pay $95 per DirecTV share, in a combination of cash and stock, valuing the company's total equity at $48.5 billion.

The payout marks a 10.2% premium to DirecTV's Friday close, and values the El Segundo, Calif., satellite TV group at 7.7 times estimated 2014 Ebitda.

Stephenson said the deal would redefine the video entertainment business, by giving AT&T a new medium for distributing content alongside its wireless and broadband networks.

DirecTV has a nationwide satellite network. AT&T would become the second largest pay-TV company, and would gain leverage in negotiations with content producers. The Dallas telecom would also gain cash flow to support its dividend.

Stephenson described DirecTV's Latin American arm, with 18 million subscribers, as a growth business for AT&T in Monday's investor call.

"While this deal certainly has a number of positive elements, there are still several challenges that it will not resolve for [AT&T]," Jonathan Schildkraut of Evecore Partners wrote in a Monday note. Foremost, Schildkraut wrote, is that AT&T and DirecTV both are projected to have low single digit earnings growth for several years.

AT&T shares dropped 74 cents, or 2%, to $36 on Monday morning.

DirecTV fell $1.80, or 2%, to $84.38.

The deal has implications for Charlie Ergen's Dish Network Corp., which would lose two potential merger partners if AT&T acquires DirecTV.

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