NEW DELHI: Even as Brazil has been given the go-ahead to acquire DirectTV by American wireless carrier AT&T for $48.5 billion, the deal is facing regulatory issues with the US Federal Communications Commission (FCC). It is being asked to consider several key issues before giving the green signal.
American senators Amy Klobuchar and Mike Lee, Senate Judiciary Committee’s Anti-trust subcommittee chairman and ranking member , have written to Attorney General Eric Holder and FCC chairman Tom Wheeler to consider the effect the deal could have on consumers’ access to broadband service, and worries over the loss of independent programming as the number of buyers for this programming shrinks.
The two also talked about the impact on three regional sports networks. Klobuchar and Lee urged a probe into whether the deal would prompt DirecTV to increase the fee it charges other companies to broadcast its three regional sports networks. The networks, known as Root Sports Northwest, Pittsburgh and Rocky Mountain, carry a variety of professional and college sports across 18 states.
Even when the deal was first announced in May this year, it had led to heated debate both in the media in the US as well as among shareholders, stock watchers and industry stakeholders.
Some analysts asked why Apple, Verizon and Google never considered purchasing DirecTV at this exorbitant price.
According to various reports in the media in the US, DirecTV shareholders were reportedly happy with the price and shareholder rights attorneys at Robbins Arroyo were investigating the proposed acquisition.
DirecTV shareholders will receive $28.50 in cash and $66.50 in shares of AT&T stock for each share of common stock, for a total consideration of $95.
Robbins Arroyo’s investigation focuses on whether the board of directors at DirecTV is undertaking a fair process to obtain maximum value and adequately compensate DirecTV shareholders, who were expecting more.
The $95 merger consideration is significantly below the target price set by at least four analysts, including a target price of $100 set by analysts at Macquarie Group and Atlantic Equities. The company’s comparable adjusted earnings per share beat analyst estimates in three out of its last four quarters, said Robbins Arroyo.
DirecTV shareholders have the option to file a class action lawsuit to ensure the board of directors obtains the best possible price for shareholders and the disclosure of material information.
AT&T has also been under attack from Fitch Ratings that has placed the ‘A’ Issuer Default Ratings (IDRs) and outstanding debt of AT&T and its subsidiaries on Rating Watch Negative. The company’s ‘F1 short-term IDR and commercial paper rating has also been placed on Rating Watch Negative.
Fitch said AT&T’s acquisition of DirecTV will improve its financial flexibility owing to DirecTV’s strong free cash flows and the significant equity component in the transaction financing.
DirecTV’s video assets are complementary to AT&T’s operations, but the longer term strategic benefits are less clear and depend on the post-merger company’s ability to capitalize on emerging trends in the industry, Fitch said.
But AT&T’s planned acquisition of DirecTV offers benefits in the form of a nationwide footprint for AT&T as a Video Over the Top (OTT) and pay TV operator and ties in with the company’s already strong IPTV, broadband and wireless businesses, said Strategy Analytics.
Meanwhile, Infonetics Research has reduced its 2017 pay-TV revenue forecast by 35 percent globally, from $401 billion to just under $260 billion. It said the overall video services ARPU and revenue growth will be constrained.
“This is because of the result of increasing competition from OTT (over-the-top) players and the service providers themselves using broadband video as a lower-priced offering,” said Jeff Heynen, principal analyst for broadband access and pay TV at Infonetics Research.
Brazil’s Agencia Nacional de Telecomunicacoes (ANATEL) as well as Trinidad and Tobago gave approval to the deal.
AT&T has also filed an informational notice with the Hawaii Commission.
