DTV - Directv

[Yours Truly]

"The WSJ reports AT&T and DTV are discussing a cash/stock deal that could be announced in as soon as two weeks..........."

 

Tick/Tock

[Yours Truly]

http://www.bloomberg.com/news/2014-05-12/at-t-said-in-advanced-talks-to-buy-directv-for-about-50-billion.html

 

AT&T Inc. is in advanced talks to acquire DirecTV, the largest U.S. satellite-TV provider, for about $100 per share, according to people familiar with the matter.

 

Under the plan being discussed, DirecTV management will continue to run the company as a unit of AT&T and DirecTV Chief Executive Officer Mike White plans to retire after 2015, said the people, asking not to be named because the information is private.

 

The $100 per share price values El Segundo, California-based DirecTV at about $50 billion. That’s about 29 percent above DirecTV’s price on April 30, before the Wall Street Journal first reported the companies were in talks.

 

DirecTV and AT&T are planning on a 12-month regulatory process, one of the people said.

 

 

[LowIQinvestor]

$100 seems too low.

 

Buying some calls

[jrallen81]

I suppose the stock's relative lack of reaction to the reports of $95-$100 are skepticism the deal gets done?

[Yours Truly]

I suppose the stock's relative lack of reaction to the reports of $95-$100 are skepticism the deal gets done?

 

The part about getting the deal done within "two weeks" is pretty vague and up in the air.  Until we see a concrete bid, I suspect the share price will be range bound.

 

Plus, WSJ dealbook just reported that AT&T will supposedly now offer an offer between $92-94.

[constructive]

$92 - $94 is kind of a kick in the pants after the previous rumor of ~$100. No doubt the lower number is spread by AT&T insiders to angle for an edge in the final negotiations.

 

Combine that with the likelihood of a very long closing schedule (up to a year) and no wonder shares are only at $87.

[thefatbaboon]

Anyone know whether Murdoch would have any interest?  He bought it once...Chase was DTV's CEO for a while...would be an interesting combination with the European satellite companies.  Should be relatively easy to get past the regulators.

 

 

[karthikpm]

http://www.bloomberg.com/news/2014-05-17/at-t-directv-said-to-aim-to-complete-deal-by-monday.html

 

Looks like it is getting closer to an announcement.

[thefatbaboon]

With all this chatter I guess something must be happening.

 

I'll be sad to see DTV go.  Very enjoyable company to be an investor in.  Even the little details - like how they time the intensity of the share buybacks.  Going hard during the GVT inspired weakness last year, going super fast at the beginning of this year and immediately stopping when the price ran away.  The great, detailed investor conferences. 

 

Owning this company over the years has felt like sitting in a big, comfortable  armchair - which just gets better and better with familiarity.  Incredibly impressed with Mike White - (Pepsi really backed the wrong horse). 

 

I hope at least we are offered more than $100.  On 500m shares that would be $50bn.  FCF is $3bn and if the business grows 5% there's about $1bn of incremental debt capacity (assuming leverage ratio held constant at 2.5).  $50bn for an equity where you can take out $4bn a year...hardly a rich price.  I'd probably hold for $120.  But then again I'm greedy and I'm very comfy in my DTV armchair.

 

 

 

[fareastwarriors]

great analysis and call on the deal by all of u.

congrats

[compounding]

http://about.att.com/story/att_to_acquire_directv.html

 

There it is, $95 stock and cash deal.

[constructive]

http://about.att.com/story/att_to_acquire_directv.html

 

There it is, $95 stock and cash deal.

 

Considering the collar and the heavy news coverage, I expect the arb spread to be fairly tight. I'll probably sell my remaining shares in the next few days.

[cmattporter]

Not to sound like a complete noob, but if I own shares in DTV do I get cash after the transaction, or should I sell when it tops out?

[constructive]

Not to sound like a complete noob, but if I own shares in DTV do I get cash after the transaction, or should I sell when it tops out?

 

If you hold until the deal closes (say 9 months) you will get a combination of cash and AT&T stock.

 

Starting Monday, DTV will stop being priced as a stand alone company and start being priced as an option on AT&T stock (and whether the deal closes, and when). You should look at the arbitrage spread (the percentage discount from $95) when deciding whether to buy or sell shares. In this case, since it is a cash/share deal with a price collar, you also need to determine whether T stock is attractive and what the option value of the collar is.

 

If you've never done arbitrage before, I would suggest selling.

[sleepydragon]

maybe there's a small chance that Malone or Icahn coming in and force att pay more? 95 seems low. they can easily raise to 100. but maybe Malone can get them pay 120.

one thing I don't understand: It seemed obviously  there will be a deal on Thursday and Friday. But why did the stock was still at $86 on friday? Am I just got lucky because I am too naive?

[Yours Truly]

maybe there's a small chance that Malone or Icahn coming in and force att pay more? 95 seems low. they can easily raise to 100. but maybe Malone can get them pay 120.

one thing I don't understand: It seemed obviously  there will be a deal on Thursday and Friday. But why did the stock was still at $86 on friday? Am I just got lucky because I am too naive?

 

Malone is too focused on consolidating the cable industry plus he left DTV a while ago.

 

The deal wasn't obvious as the news reported it would take two weeks to hash out the details.

[valueorama]

I dont think malone has a stake in DTV. He is completely out. Unless he decided to arb it for some reason and took a position recently.  May be Ted/BRK can make a noise for a higher bid.

[constructive]

Here's a diagram of the price collar. I'm guessing since T's implied volatility is pretty low, the option is not that valuable. I would say $91, maybe $92 present value, at most.

DTV_Arb_Value.pdf

[thefatbaboon]

A couple thoughts:

 

1. I'm a bit disappointed with the price.  They really should have got at least $100.

 

2.  Even though T is the acquirer I get the impression DTV was an eager seller.  the 30/70 split, the lowish price, the quickness of the deal, and a passing comment by ergen on his last conference call to the effect that "DTV was shopping itself".  I wonder why?  Mike White has always seemed very confident in the pure-play satellite model.

 

3.  Are there any other possible bidders? Verizon -  unlikely so soon after Vodafone.  Dish - too poor for cash bid, too much Ergen stock/control for an acceptable stock bid.  Murdoch/Fox might be a possibility.

 

4.  Would a financial agitator get involved?  Again, seems unlikely, but Malone and Maffei still have shares.  (Maffei confirmed he was a "happy shareholder" during the Moffett conference last week)

 

5.  Assuming the deal goes through the ATT/DTV will make a tougher competitor for Charter in a lot of it's core geographies (and perhaps for Sirius).  There's something quite formidable about being able to offer a complete bundle: cell phone, internet & video (& connected car).

 

6.  Continue to hold or sell?

 

Upsides to holding: a) competing bid emerges b) at&t is a fine security with a 5% dividend and is unlikely to decline much below the collar c.) broker margin loans are very cheap at the moment so it's painless to borrow against a DTV position and use the capital for other investments.

 

Risks:  a.) the deal gets shot down

 

Given that I've been looking at VZ and T recently as potential longs I'm currently leaning towards holding my DTV to see if any other offer emerges - even though I think it very remote.  Anyone have a view on the risks of the deal getting shot down?  Will be interesting to see if there is a break fee, and the size.

 

 

 

 

[karthikpm]

Premarket price on DTV is down 1.2%

This is likely a big arb play.

Seems like DTV could have done better- if their business remained intact and they repurchased shares at the current rate, they would have reached 100/sh over the next couple of years without a bid.

 

[writser]

Premarket price on DTV is down 1.2%

This is likely a big arb play.

Seems like DTV could have done better- if their business remained intact and they repurchased shares at the current rate, they would have reached 100/sh over the next couple of years without a bid.

 

Is 100/sh over a couple of years so much better than 95 now?

[thefatbaboon]

Premarket price on DTV is down 1.2%

This is likely a big arb play.

Seems like DTV could have done better- if their business remained intact and they repurchased shares at the current rate, they would have reached 100/sh over the next couple of years without a bid.

 

Is 100/sh over a couple of years so much better than 95 now?

 

Except it isn't "$95 now".  It is $95 whenever the deal gets consummated which might be anywhere between 6 and 18 months.  The more I think about it the more I feel that we got a "sellers deal".  Directv might make $5bn in FCF by the time the deal gets done and we get paid.  Until then we get no dividend, no break fee if it gets shot down, no buyback, and we only share in whatever upside ATT stock might have to the extent that the stock exceeds $38.6.  This is a merger in the true sense of the word not an acquisition with premium.  If i were a T shareholder I would be very, very happy with this deal. 

[karthikpm]

Premarket price on DTV is down 1.2%

This is likely a big arb play.

Seems like DTV could have done better- if their business remained intact and they repurchased shares at the current rate, they would have reached 100/sh over the next couple of years without a bid.

 

Is 100/sh over a couple of years so much better than 95 now?

 

Agree with thefatbaboon entirely. Additionally, the recent price is a response to anticipated T bid .  I think T got the better deal

[writser]

Fair points, thx. Still, 95 in a year or 100 in a couple of years - not much difference. And if the deal gets shot down you should be happy I guess.

[Guest wellmont]

Premarket price on DTV is down 1.2%

This is likely a big arb play.

Seems like DTV could have done better- if their business remained intact and they repurchased shares at the current rate, they would have reached 100/sh over the next couple of years without a bid.

 

Is 100/sh over a couple of years so much better than 95 now?

 

Except it isn't "$95 now".  It is $95 whenever the deal gets consummated which might be anywhere between 6 and 18 months.  The more I think about it the more I feel that we got a "sellers deal".  Directv might make $5bn in FCF by the time the deal gets done and we get paid.  Until then we get no dividend, no break fee if it gets shot down, no buyback, and we only share in whatever upside ATT stock might have to the extent that the stock exceeds $38.6.  This is a merger in the true sense of the word not an acquisition with premium.  If i were a T shareholder I would be very, very happy with this deal.

 

keep in mind that DTV is in a capped business. a declining business if you will. their strategic positioning is poor. which is why they can't do much better than this apparently. they did not prepare for a future post SAT TV distribution.