In his largest acquisition since becoming CEO in June 2007, Stephenson agreed this week to pay $48.5 billion for DirecTV, the largest U.S. satellite-TV provider.
DirecTV wasn’t his first choice. Stephenson had been angling to deliver high-speed mobile Internet service across the Atlantic by pursuing Vodafone Group Plc. (VOD) That prospect was tabled after Comcast Corp. announced plans to merge with Time Warner Cable Inc., forcing AT&T to focus on the lucrative, though shrinking, U.S. pay-TV market.
Now, as new wireless subscribers become harder to find and viewers turn to online video, Stephenson has landed a deal to offer a full range of TV, mobile, phone and broadband services for consumers to get content any time, anywhere.
“Stephenson must have been torn,” said Markus Friebel, an analyst at Independent Research GmbH in Frankfurt. “The Comcast-Time Warner deal forced his hand to build a counterweight in the U.S. The pressure to act was higher than for doing a deal with Vodafone.”
Stephenson, 54, comes from the same mold as his predecessor Ed Whitacre, whose 17 years as CEO carry a legacy of dealmaking. Stephenson spent three years as the top lieutenant during Whitacre’s $100 billion acquisition spree.
Stephenson was chief operating officer of SBC Communications, which grew out of one of the regional Baby Bells, the phone companies created from the break up of AT&T in 1984.
SBC grew by making deals, buying three of its Bell brethren and combining Cingular with AT&T Wireless, which is now the second-largest mobile operator.
“They were deal-driven,” Entner said. “They knew they had to take risks in order to win, and history has been on their side.”
AT&T Inc. itself was created when the former SBC Communications Inc. bought AT&T Corp. in 2005 and assumed its name.
Stephenson, who grew up in Oklahoma City and earned a master’s degree in accounting, has worked for AT&T and its predecessors since 1982. He started in the technology department and served a stint in Mexico City overseeing investments in the country.
Now, Stephenson is responding to Comcast’s $45 billion agreement to merge with Time Warner Cable to create an even larger cable provider, underscoring the need for national scale.
AT&T’s deal for DirecTV (DTV) would merge the second-largest U.S. wireless company with the biggest U.S. pay-TV provider, aimed at accelerating the convergence between video distribution and high-speed wireless. With a value of $67.1 billion including net debt, it’s AT&T’s third-largest deal on record, data compiled by Bloomberg show.
AT&T said DirecTV gives them a new set of customers to sell bundles of services like wireless, home security and video streaming to phones and cars. In addition to 20 million customers in the U.S., Stephenson is also getting 18 million in Latin America.
“AT&T always had a bigger vision on how the market will evolve,” Entner said. “The Comcast-Time Warner Cable deal was a defining moment for them because Comcast has a similarly strong vision of how the market will play out.”
Stephenson’s acquisition isn’t without its skeptics.
“This feels like a deal that 10 years ago might have made some sense, but today is a real head-scratcher,” Craig Moffett, an analyst with MoffettNathanson LLC, said on Bloomberg TV yesterday. “There is going to be a rigorous antitrust review of this deal because in 25 percent of the country, you are still going from four competitors in pay TV to three.”
The acquisition still needs approval from DirecTV’s shareholders, in addition to regulators. AT&T fell 1 percent yesterday after the deal was announced, while DirecTV dropped 1.8 percent. Today, AT&T declined 1.7 percent to $35.76 at 12:23 p.m. in New York, and DirecTV slid 1 percent to $83.80.
The transaction also could be derailed by the National Football League. If DirecTV isn’t able to renew its exclusive rights to NFL Sunday Ticket on terms discussed between AT&T and DirecTV, then AT&T can call off the merger.
AT&T and DirecTV expect the deal to close within 12 months. To help with antitrust approval in Latin America, AT&T said it plans to divest its 8 percent stake in America Movil SAB.
Buckingham Research Group put the odds of regulatory approval at about 90 percent.
If successful, DirecTV could be a vindication for Stephenson after his $39 billion purchase of T-Mobile US Inc. (TMUS) was derailed by regulators in 2011. That deal’s demise not only cost AT&T $6 billion in breakup fees, spectrum and network sharing agreements, it also caused Stephenson to take a $2.08 million pay cut.
This time, AT&T won’t owe a breakup fee if the deal is blocked by regulators. DirecTV will have to pay AT&T a termination fee of $1.45 billion if it instead agrees to be sold to another company, and both companies may call off the combination if it’s not completed by May 18, 2015, though that deadline could be extended to Nov. 13 under certain circumstances.
AT&T (T) had been interested in Newbury, England-based Vodafone since at least last year, people familiar with the plans have said. Vodafone, which has a market value of about $93 billion, is the world’s second-largest wireless firm with more than 400 million customers in Europe, Africa and India. The company today reported a seventh straight quarter of falling service revenue.
People familiar with the matter said in January that AT&T was still interested in buying Vodafone, even after U.K. regulators -- responding to press speculation about its acquisition plans -- forced AT&T to make a statement. AT&T said it had no plans to bid for Vodafone, which under U.K. takeover rules bars it from making a bid for six months.
Stephenson declined to comment on Vodafone when asked about the U.K. company in an interview this week. Vodafone CEO Vittorio Colao said today he’d be “very happy” to do business with AT&T as partners, declining to comment on the prospects of combining the two carriers’ businesses. Vodafone shares fell 5.5 percent to 205.30 pence today in London.
The competitive pressures have escalated in the U.S., requiring a response from Stephenson, said John Karidis, an analyst at Oriel Securities Ltd. in London.
“It became pretty clear that the Comcast-Time Warner Cable proposed deal had changed AT&T’s priorities and it was at that point it became more unlikely that AT&T would bid for Vodafone,” Karidis said.
DirecTV presents a much lower risk than Stephenson’s other options, said Entner.
“Stephenson has steered the company well, and it has grown in the marketplace,” Entner said. “But he’s paid to make bold moves.”