Yesterday AT&T (T) confirmed their rumored mega-deal to buy DirecTV (DTV), from Bloomberg:
AT&T will pay $95 for each share of DirecTV, split between $28.50 in cash and the equivalent of $66.50 in stock, the companies said yesterday. That’s 10 percent more than DirecTV’s closing price on May 16. Including net debt, the deal values the largest U.S. satellite-TV company at $67.1 billion.
AT&T hopes to “redefine” the way consumers receive content on multiple screens. While this is not a new concept in media, it is a hot one, causing what will likely be hundreds of billions of dollars in M&A over the next few months/quarters (including Comcast’s recent $45 billion bid for Time Warner).
So if the concept of these deals is not game changing, then one may ask, why now? There are more plugged in media/communication experts out there than me who can offer a whole host of intelligent reasons for why, but let me take a quick stab as to the “why now?” question. Obviously, DTV shareholders are pretty happy (assuming the deal passes what could be serious regulatory approval process). But when mega deals happen six months after the stock has already run 50%, and still come at a premium, to new all time highs, I have to scratch my head, no matter how good the fundamental reasons. To me, it speaks more to the risk taking environment, and how said environment may soon change.
The five year chart of DTV is something of a work of art, and what will be a more than 300% return off of the 2009 lows if and when the deal is consummated:
DTV has long been rumored a take-over candidate, for most of the period in the chart above. So the only question I have is this: What the hell was AT&T waiting for?? At any point over the last five years the company could have had DTV for a 30% premium, so why now with so much froth in the market. Is it a rates thing, given how much debt they will assume? Rates have been low throughout the entire period.
I don’t pretend to know the reasons, but what I do know throughout my career that started in the late 1990s, is that very few mega-mergers have worked over the long run in the stock price. I assume that while there are numerous well-crafted reasons for the combination, many will fall short of expectations. There is obviously an arms race going on for our eyeballs, but I am not sure chasing the equities in the near term of the acquirers will be great for your portfolio.