AT&T, Inc. (T) has finally received a green signal from the shareholders of leading satellite TV operator DIRECTV (DTV) for the acquisition of the latter. In the month of May, AT&T had inked a definitive agreement to buy DIRECTV for $48.5 billion.
More than 99% of DIRECTV’s shareholders voted in favor of the deal. However, although the deal looks promising, there are a number of hurdles that AT&T is likely to face in the near future in this regard. The biggest challenge for the company is to receive approvals from The Federal Communications Commission (FCC) and the Department of Justice. The fact that the AT&T-DIRECTV merger will bring down the number of video operators in the U.S. from four to three, poses a significant threat that certainly will not go down well with regulators. As historically witnessed, regulators have always stressed on maintaining pricing competitiveness to benefit consumers. It might seem less likely that the FCC would forgo such issues easily this time around.
Apart from offering financial synergies, we believe the buyout will likely elevate AT&T’s position in the pay-TV business, which is currently catered to by its U-Verse brand. Further, it will enable AT&T to provide bundled services that would include video services together with mobile and broadband offerings.
Moreover, going forward, the proposed acquisition should provide ample exposure to AT&T in the Latin American markets where DIRECTV is a leader in the pay-TV business. Reportedly, the pay-TV market in Latin America remains underserved with only 40% of the population subscribing to such services.
Naturally, AT&T has ample room to further expand into an already established market while bringing in additional advanced technologies in content delivery. The company can now integrate its U-verse network with DIRECTV’s satellite platform, which already enjoys a broad reach and offers efficient utilisation of broadband speed for delivering video services.
AT&T currently has a Zacks Rank #3 (Hold).
Other stocks to Consider
Better-ranked stocks worth considering in this sector include Verizon Communications Inc. (VZ) and Chunghwa Telecom Co., Ltd. (CHT). Both the stocks hold a Zacks Rank #2 (Buy).
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