DTV - Directv

[sleepydragon]

Does anyone know why the DTV deal spread is so wide? I think almost 15%? I am scratching my head..

[no_free_lunch]

Does anyone know why the DTV deal spread is so wide? I think almost 15%? I am scratching my head..

 

This is what I know, based on reading the thread and a few articles.  Take this with a grain of salt as I'm no expert.

 

- There is no break-up fee.  AT&T can just walk if DTV's business deteriorates or there is a sharp selloff.

- Unknown time-frame.  Could be 12-18 months.  At 12 months it's still a good deal but if you get to a year and a half, less so.  You could have a 5% div just buying T.

- The portion that is paid in stock can still lose value.  There is that clause where it has to fall more than 5% before it would affect DTV shareholders but you're not guaranteed to get $95.

- I guess counteracting the above point, T could soar in price which could result in greater than $95.  However T could also cancel the deal if there price went up substantially, unlikely but another complexity.

 

So basically there is limited upside but unlimited downside.

[tng]

I don't remember the history of telecom buyouts and mergers that well, but I think they typically take a very long time to close due to government regulation. It can easily take well more than a year, so discounting for a year or more and adding in a spread for the risk of the deal falling apart, a 10%+ spread isn't too surprising. I do think 15% might be too wide, but it isn't wide enough for me to make a bet on it.

[gfp]

The deal is also contingent on the renewal of the NFL Sunday Ticket contract under terms substantially similar to what DTV discussed with T during merger negotiations.  Add to that the need to hedge out the stock portion of the spread by shorting a high dividend payer.

[compounding]

I wouldn't call the downside unlimited at all. Owning DTV if the deal falls through is, on the contrary, a pretty nice downside in my opinion.

 

 

[no_free_lunch]

I guess it's not unlimited downside, it's limited to your initial investment.

 

In the case where DTV continues to perform well AT&T is likely to finish the transaction.  If something changes, if the stock market tanks or DTV's business starts to trend down then AT&T could just pull the plug.  The only way I see you getting upside on DTV is if AT&T pulls out due to regulatory issues.  Otherwise you are probably holding DTV at a disadvantageous time.  Basically, I think a lot of the advantage are to T shareholders.

[thefatbaboon]

I think it's perfectly reasonable to hold DTV here.

 

As of March they had $3bn in cash, over the next 12 months they should add another $3bn of FCF.  So, by this time next year they should have $6bn of cash.  If the deal fails they will be in a position to immediately take advantage of any fall in the share price with a 12 month share repurchase authorization for 20% of the float ($6bn cash on hand + $3bn of 15/16 FCF).

 

I think that is a nice safety net while one waits for the deal spread to close and there is of course the potential for a bid from Dish - the likelihood of which will be easier to ascertain after the autumn spectrum auctions and depending how a Sprint/Tmobile deal plays out. 

 

I took margin equal to just under 50% of my DTV position. The loan costs less than 1%.  Used the money to add a couple of investments that I like.  Seemed more logical than selling out at the 10%-14% spread the market's been offering since the deal was announced.

 

 

 

 

 

 

[fareastwarriors]

Dish Was In The Bidding For DirecTV

 

In Regulatory Filing, DirecTV Details Circumstances Leading to Its $49 Billion Deal with AT&T

 

 

http://online.wsj.com/articles/dish-was-in-the-bidding-for-directv-1404222225?mod=WSJ_hp_LEFTWhatsNewsCollection

[sleepydragon]

Matt Rose, who run bnsf and is a ATT director, bought 1 mn dollar of AT&T stock in latest filing.

[LowIQinvestor]

Take a look at the spread on the merger arb.

Around 12% discount (plus the tax advantages of the stock portion of the deal)

 

DTV looks interesting here.

[LowIQinvestor]

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.

 

 

[DCG]

-DTV extended their contract from NFL Sunday Ticket for 8 years, but they're payign a lot. 1.5B per year, which is 50% higher than their current cost.

[KCLarkin]

Take a look at the spread on the merger arb.

Around 12% discount (plus the tax advantages of the stock portion of the deal)

 

DTV looks interesting here.

 

I am still holding my small DTV position but not paying too much attention. When is this expected to close?

[gfp]

Middle of next year

 

(edit: and since T is below the collar price, the deal is currently worth less than 95. - around 92 at current prices.  If you wish to hedge out high dividend paying T stock, the spread is that much smaller)

[LowIQinvestor]

12% return in less than a year sounds good to me.

 

I think AT&T is potentially undervalued as well.

 

DTV & AT&T are great buys!

[LowIQinvestor]

"AT&T Spokesman Balmoris Expects DTV Deal To Close In First Half Of 2015"

 

Still think this is a great merger arb opportunity.

[boilermaker75]

"AT&T Spokesman Balmoris Expects DTV Deal To Close In First Half Of 2015"

 

Still think this is a great merger arb opportunity.

 

I do too, but to control the time of the play I just keep writing puts.

[karthikpm]

Are there any conditions of T's stock price that the merger will not happen? I feel like DTV at 83 is cheap , but it's now an implied multiple of T pending the merger

 

 

[SwedishValue]

Is it likely that it was Weschler // Combs that added to the DTV position? What is the most likely reason, a merger arbitrage kind of deal?

[Jurgis]

Is it likely that it was Weschler // Combs that added to the DTV position? What is the most likely reason, a merger arbitrage kind of deal?

 

It was pretty likely not Buffett. :)

My guess it's merger arbitrage with possible intention to hold T.

Weschler//Combs trade much more than Buffett, so you can't infer if they will hold and how long.

[boilermaker75]

Are there any conditions of T's stock price that the merger will not happen? I feel like DTV at 83 is cheap , but it's now an implied multiple of T pending the merger

 

If the merger is completed, DIRECTV shareholders will receive $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.

[karthikpm]

I guess if T drops to 30, the deal still goes through with 1.905 shares? Is there a provision/ threshold where the deal does not go through?

[pocoapoco]

Just looked at this again... Seems like the market is implying a decent chance the deal does not go through (>20%) if you think Dtv drops to 70 in the case that it fails.

That seems like a high fail probability.

[thefatbaboon]

T currently 32.89 so we're under the lower limit of the band.  That means 1.905.

 

So, 28.5 cash + 1.905(32.89) = 91.15

 

Versus current DTV 83.88, so 8.7% yield to completion assuming the holder has no tax leakage. 

 

The T short for an arb would have quarterly dividend expense of min 46 cents (probably a bit more as a raise is due).  Say it takes 6 months the div expense likely to be $0.94.

 

For an arb looks like <12% annualized

[Phaceliacapital]

http://www.businessweek.com/articles/2014-12-22/directvs-spanish-streaming-service-is-about-more-than-telenovelas#r=hpt-ls

 

For DirecTV, a major attraction of developing the Spanish-language service, which it calls Yaveo, is to begin building the skills the company will need to get into the broader Internet television business. “The technology is scalable and could be leveraged on other initiatives down the road,” Chief Executive Officer Michael White told investors last month.