AT&T Is Taking An Absolute Bath On Its DirecTV Merger

from the synergies dept

So we've noted a few times how giant telecom providers, as companies that have spent the better part of the last century as government-pampered monopolies, are adorable when they try (then inevitably fail) to innovate or seriously compete in more normal markets. Verizon's attempt to pivot from curmudgeonly old phone company to sexy new ad media darling, for example, has been a cavalcade of clumsy errors, missteps, and wasted money.

AT&T has seen similar issues. Under CEO Randall Stephenson, AT&T spent more than $175 billion on mergers with DirecTV and Time Warner, hoping this would secure its ability to dominate the pay TV space through brute force. But the exact opposite happened. Saddled with so much debt from the deal, AT&T passed on annoying price hikes to its consumers. It also embraced a branding strategy so damn confusing -- with so many different product names -- it even confused its own employees.

As a result, AT&T lost 3,190,000 pay TV subscribers last year alone and roughly 7 million since 2018. Not exactly the kind of "domination" the company envisioned. Despite a $42 billion tax break from the Trump administration for literally doing less than nothing (42,000 layoffs, in fact), AT&T's now being forced to consider low ball offers for DirecTV after investors finally got tired of the company's merger-mania. As such, a company that was acquired for $67 billion (including debt) in 2015, is likely to be sold for less than a third of that:

"The telecom giant last week invited a handful of suitors into the second round of an auction of the struggling satellite-TV broadcaster, even though first-round bids had valued DirecTV at well below $20 billion, The Post has learned.

Opening bids from a coterie of buyout firms came in at around 3.5 times DirecTV’s roughly $4.5 billion of Ebitda, implying a valuation at around $15.75 billion, according to a source close to the process."

A lot of experts told AT&T it was silly to buy a satellite TV provider on the eve of the cord cutting revolution. As such it's kind of surprising to see that AT&T insiders are surprised by any of this:

"It is very, very surprising they would sell DirecTV at such a low price — that’s a serious destruction of value,” said a former AT&T executive who spoke on the condition of anonymity.

An AT&T spokesperson declined to comment."

AT&T bought a company based on antiquated tech, integrated it into a confusing array of befuddling, discordant brands, then tried to make consumers pay off the debt in the form of relentless price hikes at the peak of a massive paradigm shift in television where price matters more than ever. Yeah, totally surprising how that didn't work out.

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Filed Under: cord cutting, randall stephenson, satellite tv, tv
Companies: at&t, directv


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  1. identicon
    Anonymous Coward, 8 Oct 2020 @ 12:47pm

    It did work out though. Maybe not for AT&T, but certainly for the investment bankers who helped devise the merger (and were paid handsomely in consulting fees) and AT&T's CEO and cronies who made out on bonuses tied to the merger. And all that money comes from AT&T's investors and customers, so basically Stephenson took a bunch of money from institutional investors and lined their own pockets while the investors take a bath and the customers (such as myself, abet for cell service and not cable) have to take price hikes to pay off all those bonuses and fees.

    reply to this | link to this | view in thread ]

  2. icon
    JoeDetroit (profile), 8 Oct 2020 @ 2:04pm

    Plus no more fiber

    No more fiber makes me sad. They told me they were doing it but no, they now say they are done. A few blocks away they got AT&T fiber. I am stuck with Comcrap, it's fast but damned expensive. Working from home I've gone over my 1.2 terabyte cap twice now. We need the competition!

    reply to this | link to this | view in thread ]

  3. identicon
    Anonymous Coward, 8 Oct 2020 @ 2:22pm

    That's why services like stadia will fail ,
    Not many want to stream games at 4k resolution
    When there's caps on data use per month.
    Why did Att think it was worth buying a satellite TV service when most people are now using apps or streaming services to watch TV?
    Sat TV is older tech, like most people do not buy dvds or blueray since every media company now has a streaming service.
    Satellite TV is still used by people where there's no fast broadband available
    Maybe telecom company's should try talking to ordinary users before spending billions buying
    old company's

    reply to this | link to this | view in thread ]

  4. identicon
    bt, 8 Oct 2020 @ 2:31pm

    As always, when AT&T buys into a 'new or promising' business, that means that it's time to sell any business that is connected to that area of business.

    reply to this | link to this | view in thread ]

  5. identicon
    Bobvious, 8 Oct 2020 @ 2:42pm

    Modernising AT&T

    You mean customers aren't impressed by those Bluetooth-enhanced buggy whips?

    reply to this | link to this | view in thread ]

  6. identicon
    Anonymous Coward, 8 Oct 2020 @ 3:32pm

    Ooooh, yay!

    With AT&T's debt burden eased, we'll finally see those promised jobs, and a rollback of the increased prices, right?

    <beat>

    Hahahahaha.... no.

    reply to this | link to this | view in thread ]

  7. identicon
    Anonymous Coward, 8 Oct 2020 @ 4:26pm

    Numbers are a bit off

    While the broad point of AT&T taking a bath here is accurate, it's misleading to talk about a purchase price including debt while then talking about a sale price excluding debt. It's unlikely much of that debt has moved off DirectTVs balance sheet. It would be more reasonable to quote the initial purchase price of $49B noting it came with a significant debt load.

    reply to this | link to this | view in thread ]

  8. identicon
    Anonymous Coward, 8 Oct 2020 @ 5:07pm

    Ebitda! Featuring the hit song, Don't Cry For Me AT&Tina.

    reply to this | link to this | view in thread ]

  9. identicon
    Anonymous Coward, 9 Oct 2020 @ 6:59am

    Been there, done that.

    This merger stuff isn't new. Several decades ago, Intel tried the same strategy. They bought small company after small company, figuring that one of them would be the next big Internet thing and would pay for the rest who weren't . The strategy failed miserably. (Disclaimer: I worked at one of the small companies that wasn't the next big Internet thing.)

    It is mind boggling to think that institutional investors are STILL so clueless to this sort of stuff that they fund it.

    As for ordinary share holders, most of them hold thought some Wall Street company, who also exists for the benefit of it's execs, first and only. Investing 401K retirement in the stock market has just added fuel to the fire. Of course, there is reason to expect that company execs get sweet-heart deals with Wall Street when they "encourage" 401K participation. Well, limit your sympathy for the average individual, if they weren't allowing their own greed too much free play, they wouldn't be in the position; as to greed execs, they are just like the average individual on steroids.

    Savings are healthy. Comfort is desirable. However, grasping for the most possible pennies is asking to be hurt. A bit of self-discipline on the part of all parties would help.

    Prudence on most people's part would not provide the financial fuel (money) for ATT, and Intel and Wall Street and others to play these games.

    And by the way, of course Congress (both parties) have their fair share of the blame in this.

    What goes around come around. Intel pulled this one before, ATT is pulling it now, who is next? Who is going to abandon Wall Street for something more prudent so as not to be the next sucker? I have, maybe I won't win as much, but I won't lose as much either.

    Now: let the greedy and Wall Street shills start their caterwauling about how wrong I am...

    reply to this | link to this | view in thread ]


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