CWS Market Review: Flash Alert – May 18, 2014

AT&T Buys DirecTV for $95 per Share

Great news! AT&T ($T) just announced that it’s buying DirecTV ($DTV) for $95 per share. The news broke Sunday afternoon and I wanted to send you this Flash Alert to let you know the good news.

Here are the details from the press release.

DIRECTV shareholders will receive $95.00 per share under the terms of the merger, comprised of $28.50 per share in cash and $66.50 per share in AT&T stock. The stock portion will be subject to a collar such that DIRECTV shareholders will receive 1.905 AT&T shares if AT&T stock price is below $34.90 at closing and 1.724 AT&T shares if AT&T stock price is above $38.58 at closing. If AT&T stock price at closing is between $34.90 and $38.58, DIRECTV shareholders will receive a number of shares between 1.724 and 1.905, equal to $66.50 in value.

AT&T closed Friday at $36.74 per share. On Twitter, I guessed that the deal would be two shares of AT&T plus $20 in cash for each share of DTV, so I was pretty close.

The collar is a smart move and I’m assuming it came from DTV. To make it easy for you, it’s plus or minus 5% from AT&T’s closing price on Friday. The problem with any deal transacted with stock is what happens if the acquiring company has its stock plunge. The acquired firm gets punished so some protection is a good idea. Still, I doubt the collar will go into effect.

For track record purposes, the cash portion of the deal will be assumed to be used to buy AT&T stock at the same price the stock portion of the deal goes for. In other words, AT&T will replace DTV on the Buy List. We’ll still have 20 stocks on our Buy List.

Here’s more from the press release

This purchase price implies a total equity value of $48.5 billion and a total transaction value of $67.1 billion, including DIRECTV’s net debt. This transaction implies an adjusted enterprise value multiple of 7.7 times DIRECTV’s 2014 estimated EBITDA. Post-transaction, DIRECTV shareholders will own between 14.5% and 15.8% of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding today.

AT&T intends to finance the cash portion of the transaction through a combination of cash on hand, sale of non-core assets, committed financing facilities and opportunistic debt market transactions.

To facilitate the regulatory approval process in Latin America, AT&T intends to divest its interest in América Móvil. This includes 73 million publicly listed L shares and all of its AA shares. AT&T’s designees to the América Móvil Board of Directors will tender their resignations immediately to avoid even the appearance of any conflict.

Obviously, there are other issues ahead such as regulatory approval. Expect to see DTV gap up tomorrow, but not all the way to $95 per share. If you own DirecTV, there’s no reason to sell it now. I’m going to raise our Buy Below to $95 per share, but don’t expect to see any significant gains after tomorrow’s open. There’s no need to jump in and buy AT&T. I’ll have more to say about them once the deal is done.

– Eddy

Posted by on May 18th, 2014 at 8:47 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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