Was AT&T’s Acquisition Of DirecTV A Mistake?

AT&T (NYSE:T) acquired satellite TV services provider DirecTV in 2015. In this analysis, we take a look at how the business has fared since then and whether it has lived up to expectations.

View our interactive dashboard analysis Has AT&T’s Acquisition Of DirecTV Lived Up To Its Expectations?

AT&T Acquired DirecTV In A Stock & Cash Deal Valued At $48.5 Billion In 2015

• AT&T acquired satellite-based pay-TV provider DirecTV at an enterprise value of around $67 billion.

The Deal Valued DirecTV At ~8x EBITDA, Which Was Fair At The Time

• The price paid appears to be fair, relative to the approximate EV/EBITDA multiple on Charters purchase of Time Warner Cable and the current multiples in the Cable TV industry.

However, The Business Has Under-Performed Significantly Post The Deal, With Its PayTV Subscriber Base Shrinking Almost 15% Since 2016

• AT&T’s pay TV base declined primarily due to losses at DirecTV (which accounted for about 84% of its pay TV subscribers in 2016)

AT&T Has Also Under-Performed the Broader Industry As DirecTV Lost ~9% Of Its Subscribers Over the Last 2 Years; Other Major Players Lost Between 2% to 4% Of Their Subscribers

• While the industry-wide trend of cord-cutting impacted DTV, and rivals, its declines were sharper than cable-based players due to a lower number of customers with bundled services (broadband, landlines).

AT&T’s Strategy Of Bundling Hasn’t Helped Either, As the Core Postpaid Phone Business Shrank Post Deal, With Broadband Posting Low Growth

• AT&T was betting big on bundling its pay-TV, wireless, and wireline operations to reduce churn and drive growth.
• However, its core postpaid phone base also declined with overall postpaid churn trending higher.
• Things have remained mixed on the broadband front as well.

DirecTV Deal Has Been Partly Responsible For AT&T’s Ballooning Debt

• AT&T’s debt grew from $82 billion in 2014 to around $126 billion in 2015, the year the DirecTV deal closed.
• The company’s total debt has since ballooned to $177 billion in 2018, on account of the Warner Media deal.

Conclusion

• We believe it’s safe to say that the acquisition of DirecTV hasn’t really lived up to expectations, as the business has under-performed the broader pay-TV market and appears to have failed to improve loyalty for AT&T’s other core offerings.

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