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AT&T Buys DirecTV In $67 Billion Deal; Pfizer Makes "Final Proposal" To Buy AstraZeneca, Boosts Offer To $119 Billion

Tyler Durden's picture




 

In what is setting up to be a scorching merger Monday, moments ago we got confirmation of news that had been leaked days in advance, namely that both the boards of AT&T and DirecTV had agreed to a transaction whereby AT&T would buy DirecTV in the latest chapter of what we dubbed several months ago the "M&A bubble", for $95/share in a $67.1 billion transaction including debt, consisting of $95/share in stock, $28.50/share in cash. According to the public announcement, the DirecTV purchase represents a 7.7x multiple of its 2014E EBITDA.

The terms of the transaction from the press release:

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.

 

This purchase price implies a total equity value of $48.5 billion and a total transaction value of $67.1 billion, including DIRECTV’s net debt. This transaction implies an adjusted enterprise value multiple of 7.7 times DIRECTV’s 2014 estimated EBITDA. Post-transaction, DIRECTV shareholders will own between 14.5% and 15.8% of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding today.

 

AT&T intends to finance the cash portion of the transaction through a combination of cash on hand, sale of non-core assets, committed financing facilities and opportunistic debt market transactions.

 

To facilitate the regulatory approval process in Latin America, AT&T intends to divest its interest in América Móvil. This includes 73 million publicly listed L shares and all of its AA shares. AT&T’s designees to the América Móvil Board of Directors will tender their resignations immediately to avoid even the appearance of any conflict.

Additionally, as the press release states, "AT&T expects the deal to be accretive on a free cash flow per share and adjusted EPS basis within the first 12 months after closing."

The combination provides significant opportunities for operating efficiencies. AT&T expects cost synergies to exceed $1.6 billion on an annual run rate basis by year three after closing. The expected synergies are primarily driven by increased scale in video.

Where will the upside come from:

The combination diversifies AT&T’s revenue mix and provides numerous growth opportunities as it dramatically increases video revenues, accelerates broadband growth and significantly expands revenues from outside the United States. Given the structure of this transaction, which includes AT&T stock consideration as part of the deal and the monetization of non-core assets, AT&T expects to continue to maintain the strongest balance sheet in the industry following the transaction close.

 

AT&T’s 2014 guidance for the company remains largely unchanged. However, the company’s intention is to divest its interest in América Móvil, which will result in an approximately $0.05 reduction in EPS, as the América Móvil investment will no longer be accounted for under the equity method. Adjusted 2014 EPS growth is now expected to come in at the low-end of the company’s mid-single digit guidance.

As always, there is risk the FCC will nix the transaction which forms a telecom behemoth with over $100 billion in combined debt:

The merger is subject to approval by DIRECTV shareholders and review by the U.S. Federal Communications Commission, U.S. Department of Justice, a few U.S. states and some Latin American countries. The transaction is expected to close within approximately 12 months.

* * *

Almost concurrently with the AT&T announcement, Pfizer also did what many expected it to do, when it announced that as part of its "final offer" it would boost its proposed purchase price for AstraZeneca by 15%, representing a total transaction value of about $119 billion, or about 15.6x multiple of AZN's $7.6 billion in projected 2014 EBITDA, which would represent the largest pharma deal in more than a decade.

From the press release:

  • AstraZeneca shareholders would receive, for each AstraZeneca share, 1.747 shares in the combined entity and 2,476 pence in cash, representing an indicative value of £55.00
  • Substantial increase of approximately 15% over the current value of Pfizer's 2 May proposal
  • Cash consideration increased by £8.78 per AstraZeneca share, or approximately £11.3 billion ($19.0 billion)
  • Cash component increased as a proportion of the total consideration from approximately 33% to 45%
  • Pfizer calls on supportive AstraZeneca shareholders to urge the AstraZeneca board to begin substantive engagement with Pfizer and extend the period for such talks prior to the 26 May deadline for making an offer

Most importantly:

  • Pfizer will not make a hostile offer directly to AstraZeneca shareholders and will only proceed with an offer with the recommendation of the AstraZeneca board

Indeed, as Bloomberg clarifies, citing the Pfizer CEO, "Following a conversation with AstraZeneca earlier today, we do not believe that the AstraZeneca board is currently prepared to recommend a deal at a reasonable price,” Pfizer CEO Ian Read says in e-mailed statement.

  • Pfizer sent a letter on May 16 to AstraZeneca Chairman Leif Johansson offering GBP53.50/shr, or 1.845 shares in the combined co., 2,157p/AstraZeneca shr
  • AZN said its board thought that proposal “substantially” undervalued co., said it’s not prepared to accept a price close to Pfizer’s £53.50 proposal
  • Pfizer confirms that it won’t make a hostile offer directly to AstraZeneca holders, will only proceed with offer with recommendation of AstraZeneca board

And while Pfizer said the deal expires in 8 days, on May 26, BBC's Mark Kleiman makes it clear that a deal is hardly assured even despite what appears now to be a 15x purchase multiple:

That is of course if a "retroactive" law about to be introduced by Carl Levin to kill tax "inversion" deals, doesn't scuttle the deal in the first place. The NYT reminds:

By acquiring AstraZeneca, Pfizer would be able to conduct a so-called inversion, redomiciling in Britain, where it would pay a lower tax rate, potentially saving $1 billion or more a year.

 

Pfizer is the largest and best-know company to try such a move, and lawmakers in Washington have responded by preparing legislation that would curtail inversions. Senator Carl Levin, Democrat of Michigan, is expected to introduce his bill this week.

In any case, as the scramble to take advantage of ever lower rates accelerates (because oddly enough rates are not rising for whatever reason, despite the so-called recovery), even if the AZN deal falls through, expect many more M&A deal to take place in the coming weeks and months as the final traces of the liqidity bubble manifest themselves in an M&A blowoff top now that the buyback frenzy appears to be fading and acquisitions are the last bastion before companies finally have to allocate capital to that one most hated of activities, if only by shareholder activists, capex.

 

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Sun, 05/18/2014 - 17:50 | 4771910 firstdivision
firstdivision's picture

Lol! Consolidation bitches

 

Sun, 05/18/2014 - 18:13 | 4771973 Jumbotron
Jumbotron's picture

There is no better evidence of the collapse of an economy when the consolidations begin and the choices wane.

AT&T and DirecTV only makes for a really BIG turd than simply two smaller, independent turds.

Like most of the merged airlines.

Oh yeah......here's your choice in food, cosmetics, personal care items, and laundry cleaner

http://www.convergencealimentaire.info/map.jpg

 

Sun, 05/18/2014 - 18:14 | 4771974 Jumbotron
Jumbotron's picture

Also no better evidence of Feudalism 2.1

Sun, 05/18/2014 - 19:52 | 4772190 Xibalba
Xibalba's picture

So I suppose it's just coincidence that the stock popped to 95 on Tuesday premkt last week, yeah? 

Sun, 05/18/2014 - 20:56 | 4772371 Jumbotron
Jumbotron's picture

It's ok.....they've legalized insider trading.....by simply ignoring it.

Sun, 05/18/2014 - 18:31 | 4772015 MisterMousePotato
MisterMousePotato's picture

You know? I buy food. Personal care items and laundry cleaner. Etc.

I don't buy any (as in none. Literally) of the products or brands depicted on that page. None.

Except for Friskies because Teddy, Dale, and Roofie have the geoeconomic IQ of, well ... cats.

When they go, it's 100%, Baby.

Sun, 05/18/2014 - 18:57 | 4772084 kchrisc
kchrisc's picture

"I don't buy any (as in none. Literally) of the products or brands depicted on that page."

With respect, but after a little research, I would bet that you would find that you do buy products from many of those companies. Maybe not their brands, but their products none the less.

Sun, 05/18/2014 - 21:01 | 4772381 Jumbotron
Jumbotron's picture

That's right.  A LOT of private label stuff is simply rebranded Name Brands at a different price point designed to win back the sale and get SOME profit margin out of it instead of a 100% loss.  I can't tell you how many times in the different retail establishments I've worked in that when the shipments came in and I opened the box of a certain item, the store brand and the name brand came from the same company and was shipped in the same box.

Welcome to Prison Planet.

Sun, 05/18/2014 - 23:15 | 4772677 MisterMousePotato
MisterMousePotato's picture

Years ago (decades, actually), I lived with hobos in Florida. One, ol' Harold, worked in a plant that did canning. He told me that they'd yell down the line, "Change the labels!"

Mon, 05/19/2014 - 09:08 | 4773212 WillyGroper
WillyGroper's picture

Same goes for tequila.

Shipped on the same tanker truck.

Different labels.

Sun, 05/18/2014 - 18:53 | 4772074 kchrisc
kchrisc's picture

Soon all will be consolidated under "The Party"--"One Party, Providing All. Lift up the Party!"

 

"I'm merging my guillotine operations with my neighbors."

Sun, 05/18/2014 - 20:16 | 4772262 johnconnor
johnconnor's picture

that's right: this will mean higher prices for consumers, destruction of more jobs for the consolidation of the two companies, more barriers for any small company which tried to compete... but I am sure for the CEOs will be better

Mon, 05/19/2014 - 03:51 | 4772850 mercy
mercy's picture

Pop Tarts, Nutri-Grain, Kashi..

 

Damn, Mars practically fed me as a teenager.  Not to mention, those were the worst years of my life, and I thought I was eating healthy at the time- low fat. low cholesterol, and eat your carbs!

Sun, 05/18/2014 - 18:48 | 4772052 ebworthen
ebworthen's picture

I'm sure with these monopolies the corporations will pass along the cost savings and a better product.  *cough* 

Ow!  Damn hernia is acting up, must be from being bent over too much.

You know, like the 10% off they give you for scanning and bagging your own groceries.

And the dropping costs of healthcare and pharmaceuticals.

What a world!  Is "Dancing With The Stars" on tonight?

Sun, 05/18/2014 - 17:56 | 4771925 Pairadimes
Pairadimes's picture

The combination of AT&T and DirecTV will create a singularity in the bad service universe, and the event horizon will be the merger of their automated toll free service gulags.

Sun, 05/18/2014 - 18:00 | 4771929 813kml
813kml's picture

Time Warner/AOL redux.

Sun, 05/18/2014 - 18:05 | 4771943 mvsjcl
mvsjcl's picture

Someone might call it the "M&A bubble." This is really The Great Monopolization.  That's one of the necessary stratagems of total market control.

Sun, 05/18/2014 - 18:14 | 4771968 813kml
813kml's picture

The latest M&As appear rushed and overpriced, seems like there is urgency for the suits to stuff some last bonus money in their pockets before deploying the golden parachutes.

Sun, 05/18/2014 - 18:21 | 4771993 mvsjcl
mvsjcl's picture

Also hides the real value of both the entity being bought and the buyer. A lot of these deals will be made with mostly stock, little cash. There's a reason for this.

Sun, 05/18/2014 - 18:25 | 4772002 813kml
813kml's picture

Dot bomb, oh the memories...

Mon, 05/19/2014 - 09:10 | 4773223 WillyGroper
WillyGroper's picture

That they charge you a "Convenience Fee" for talking to a human.

Mon, 05/19/2014 - 09:38 | 4773315 sleigher
sleigher's picture

I always swore I would never do business again with DirecTV after they tried to sue me for buying a smart card reader writer to test our security of our smart cards in the routers we built.  Satellite communication company, content distribution, in the bay area back in the 90's.  I guess they thought that anyone anywhere that bought one of these things was trying to steal their signal.  Some of us were just doing our job.

Sun, 05/18/2014 - 17:57 | 4771928 I am Jobe
I am Jobe's picture

This is good for employment. FORWARD USSA 

 

Sun, 05/18/2014 - 18:02 | 4771935 Kaiser Sousa
Kaiser Sousa's picture

Dow 40,000

S&P 15,000

Nasdaq Infinity...

Gold $5

Silver Extinct...

Sun, 05/18/2014 - 20:20 | 4772276 yogibear
yogibear's picture

Zimbabwe and bust!

Everyone billionares.

Sun, 05/18/2014 - 18:03 | 4771936 Hubbs
Hubbs's picture

Tyler, Is there a chart which summarizes the capital being expended in new start up companies vs the capital that is being spent to acquire existing companies?

 

Reason: I think innovation, new company production and capitalization has come to an evolutionary standstill. Whether it is the airlines, drug companies, media, no new pie is being baked, it is just being sold and consolidated with money being made by the middlemen and banks who transact the deals, and then who extract the costs from consumers in the form of higher fees. 

Sun, 05/18/2014 - 18:07 | 4771952 Tyler Durden
Tyler Durden's picture

No, but this is a good chart on what to expect from organic CapEx in US/Europe:

Source

Sun, 05/18/2014 - 18:45 | 4772054 Uncle Remus
Uncle Remus's picture

"This sucker's goin' down."

Sun, 05/18/2014 - 19:01 | 4772094 TBT or not TBT
TBT or not TBT's picture

GWB on Enron, a nice quote. But this is about western civ in its entirety.

Sun, 05/18/2014 - 18:06 | 4771950 buzzsaw99
buzzsaw99's picture

Because T doesn't have enough debt already?

Sun, 05/18/2014 - 18:07 | 4771953 JR
JR's picture

Monopoly, monopoly. Competition, said John D. Rockefeller, is a sin.

And the last time I looked, America was not on the road to a moral high ground. Monopolies do not mean better service, cheaper prices, greater innovation; they mean slavery. Perhaps the most significant monopoly in our modern world is the U.S. central bank.

It was put together by competitors, National City Bank, JP Morgan, the Rothschilds, Warburgs and Rockefellers…responsible for one-fourth of the wealth in the world…and their chief aid: Monopoly, the removal of competition.

Sun, 05/18/2014 - 18:18 | 4771984 mvsjcl
mvsjcl's picture

That's the way I'm seeing it, JR. Anti-trust laws aren't enforced, or selectively for the benefit of the entrenched powers. Control  is the linchpin of all the moves being made today. It's been that way for quite some time, but the pace is quickening, and the blatancy increases.

Mon, 05/19/2014 - 00:31 | 4772784 falconflight
falconflight's picture

F.A. Hayek explained it most exquisitely in "The Road to Serfdom."

Sun, 05/18/2014 - 18:11 | 4771967 I am a Man I am...
I am a Man I am Forty's picture

Just installed DirecTV, excellent service, hope T doesn't totally fuck everything up.

Sun, 05/18/2014 - 18:18 | 4771985 Jumbotron
Jumbotron's picture

They already have.  They bought DirecTV.

Sun, 05/18/2014 - 19:01 | 4772093 DrewJackson
DrewJackson's picture

Hasn't rained I guess then.....

Sun, 05/18/2014 - 21:03 | 4772394 Jumbotron
Jumbotron's picture

So I guess the govenment took a page from DirecTV.......blame poor performance on the weather.

Sun, 05/18/2014 - 20:21 | 4772282 Ms. Erable
Ms. Erable's picture

If they give you the level of service received by AT&T Business customers, be prepared to smash several phones in fits of extreme frustration and/or anger while attempting to receive any satisifaction from a service-related problem. If you are actually allowed to speak to a human representative, you will then experience the true meaning of the word apathy.

Best to just drop DirecTV (or any satellite/cable entertainment broadcast system) altogether ASAP. You won't miss it after about a month or so, and you'll find far more interesting things to do with your spare time. You may recover a few IQ points lost to that damned object called a television, and might even become capable of conversing about subjects other than the played-out, rehashed plotline of some asinine, made-for-twelve-year-olds programming show.

Sun, 05/18/2014 - 20:31 | 4772310 Blagio
Blagio's picture

Useless crap nobody needs. I dumped DirecTV two months ago. I miss it as much as my ex-wife.

 

B

 

 

Sun, 05/18/2014 - 23:17 | 4772682 Ms. Erable
Ms. Erable's picture

If you ever miss your ex-wife, go out and buy some better optics (/rimshot).

Sun, 05/18/2014 - 18:19 | 4771987 ms8172
ms8172's picture

There goes  more jobs!  When companies consolidate they let peoplpe go.... when will America GET IT????

Sun, 05/18/2014 - 18:29 | 4771988 medium giraffe
medium giraffe's picture

Oh god, "Monday Morning MSMMICTV Market News, brought to you from a studio that now has a high tide level of SEVEN! inches of seminal fluid, big news to gargle down this morning in M&A blah blah gargle swallow". 

Sun, 05/18/2014 - 18:27 | 4772006 OnceandForever
OnceandForever's picture

I think te price for Dorct TV is more like $48 Billion

Sun, 05/18/2014 - 18:29 | 4772009 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

Does this really mean anything for anyone, except for a few insiders who made a lot of money?

Sun, 05/18/2014 - 18:39 | 4772034 I am Jobe
I am Jobe's picture

HR at ATT is busy typing up Pink Slips. 

Sun, 05/18/2014 - 18:44 | 4772048 Uncle Remus
Uncle Remus's picture

Good thing I don't have satellite service, I'd have to cancel my account. Just like I did when AT&T was trying to take over T-Mobile - I pre-emptively canceled my account with T-Mo - beat the rush. Been pay-go since.

Sun, 05/18/2014 - 18:44 | 4772050 Seasmoke
Seasmoke's picture

It's funny. The at&t name was dead and buried only a few short years ago. 

Sun, 05/18/2014 - 19:21 | 4772134 JR
JR's picture

Exactly. There was a time when AT&T was on the ropes in part because of its unpopular stands for abortion and support of homosexuality. I remember constant marketing offers, even $75 checks, to tempt people to switch to AT&T as it tried to keep its place in the market.

AT&T’s original telephone monopoly breakup came on January 8, 1982, One of the new Baby Bells formed by the breakup of AT&T was Southwestern Bell Corporation. This company grew continuously over the years until it acquired AT&T in 2005. After this acquisition, SBC took on AT&T's name and branding, and this is the company known as AT&T today.

Thus, once again because of government interventions, rule changes, etc., AT&T grew into a monopoly as competition gradually was pushed away so that even people opposed to AT&T’s social stands were forced to accept it as their sole telephone service provider.

Now that it’s back as a government-privileged monopoly it is using its power once again to push social marketing themes that are contrary to public opinion.

Here’s the latest from thestar.com that claims that pushing homosexuality is smart marketing for AT&T because, well, there’s nothing you can do about it:

“Sochi 2014: AT&T’s criticism of anti-gay laws a political statement and smart marketing: Taking a stand against Russia’s anti-gay laws was a gamble for AT&T, but marketing experts say the company will win by standing up for human rights” – May 16, 2014:

Wrote thestar.com: “AT&T made plain its disagreement with that country’s laws against homosexuality:

“’We support LGBT equality globally and we condemn violence, discrimination and harassment targeted against LGBT individuals everywhere,’ read a blog post on the company’s website. ‘Russia’s law is harmful to LGBT individuals and families.’”

http://www.thestar.com/business/2014/02/05/sochi_2014_atts_criticism_of_antigay_laws_a_political_statement_and_smart_marketing.html

This from 2012… CEO of AT&T: Urge the Boy Scouts to Drop Ban on Gay Leaders and Troops | July 2012| Change.org

“After more than 80,000 people signed Jennifer Tyrrell’s Change.org petition, AT&T Chief Executive Randal Stephenson joing James S. Turley, chairman and chief executive of Ernst & Young, by agreeing to push the Boy Scouts to end their ‘Don’t Ask, Don’t Tell’ style ban on gay scouts and leaders.’”

http://www.change.org/petitions/ceo-of-at-t-urge-the-boy-scouts-to-drop-ban-on-gay-leaders-and-troops

In short, AT&T is a government-protected utility enjoying a monopoly position on rates and service where users are given few choices;

and it is its protection as a government monopoly that allows it to do these things.

Too bad Americans don’t have a representative government.

Sun, 05/18/2014 - 18:51 | 4772068 I Write Code
I Write Code's picture

That's a way high price for DirecTv.

This is like BofA buying Countrywide.

But it should get itself a full chapter in The Anals of Capitalism.*
*yes we know but they sold the other n for the profit.

Sun, 05/18/2014 - 19:03 | 4772097 kchrisc
kchrisc's picture

The amusing and even puzzling thing is that more and more people are cutting the "cable" TV cord. DirecTV is almost exclusively a "corded" TV play while ATT has other fiefdoms (feudal). Curious. Not about the logic, but the corruption behind it.

 

"My guillotine cut the cord long ago."

Sun, 05/18/2014 - 20:13 | 4772253 JMT
JMT's picture

The cable company still provides access to an internet signal or did you think there was an internet fairy that made high speed possible.. I know comcast charges something like $95 (plus taxes, fees & the $7.99 'rental modem fee scam' for Internet Only service

Sun, 05/18/2014 - 19:32 | 4772151 Bernanke'sDaddy
Bernanke'sDaddy's picture

The two best things to come out of DirecTV were this:

 

https://www.youtube.com/watch?v=jBOq-skoi1c

and this:

 

https://www.youtube.com/watch?v=f0fa_BaljjQ

 

The guy kinda looks like a younger Vlad, too.

Sun, 05/18/2014 - 19:40 | 4772167 Baby Eating Dingo22
Baby Eating Dingo22's picture

I'll see your 119 billion and raise you 119 billion

 

Sun, 05/18/2014 - 20:27 | 4772285 yogibear
yogibear's picture

Federal Reserve is out buying US debt from Belgium accounts and elsewhere to hide the US dollar is dying.

Sun, 05/18/2014 - 20:30 | 4772307 buzzsaw99
buzzsaw99's picture

T has achieved too big to fail komrades!

Sun, 05/18/2014 - 21:09 | 4772415 yogibear
yogibear's picture

Too big to fail also means too big to jail.

Free pass to do anything they want, even murder,

Sun, 05/18/2014 - 21:49 | 4772501 Duc888
Duc888's picture

JMT:The cable company still provides access to an internet signal or did you think there was an internet fairy that made high speed possible.. I know comcast charges something like $95 (plus taxes, fees & the $7.99 'rental modem fee scam' for Internet Only service..

Hmmm, I'm payin $29 a month for Comcast internet only broadband.  I bought my own modem or router thingy...so with taxes is like a buck a day.

Mon, 05/19/2014 - 09:32 | 4773295 WillyGroper
WillyGroper's picture

You may be grandfathered. 

T is retiring 1st gen BB & with it the original pricing.

License to steal.

Mon, 05/19/2014 - 00:26 | 4772778 falconflight
falconflight's picture

When our Direct contract is expired, we'll dump them and make our albeit small sacrifice and token of resistance to this ever growing fascist monstrosity called Amerika.

Mon, 05/19/2014 - 07:17 | 4772985 Budd aka Sidewinder
Budd aka Sidewinder's picture

Levin could block it???? Hmmm....

Must not be enough Jews on the boards at Pfizer of AZ...either that or Levin missed out on the 'insider' mtg and didn't get to preload up on shares....

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