Cost Synergies from AT&T–DIRECTV Merger Are Adding Up



AT&T-DIRECTV merger synergies

In Part 3 of this series, we discussed the possibility that AT&T (T) and DIRECTV (DTV) would now have better bargaining power when negotiating with media networks over content deals. Content acquisition is a significant cost for the pay-TV industry. We also learned that DIRECTV’s content costs are rising, and that the company expects the trend to continue in 2015.

Here, we’ll look at the estimated cost synergies to be derived from the AT&T–DIRECTV merger. AT&T expects ~$2.5 billion or more per year to be saved by the third year of the merger.

The AT&T–DIRECTV merger agreement was signed in May 2014. At the time, the companies believed the transaction could produce ~$1.6 billion in annual cost synergies, again, by the third year following the completion of the merger onward.

This estimate included content cost savings. Nevertheless, this estimate was raised in April 2015, due to additional benefits identified following the merger.

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Another ~$0.9 billion in synergies

The company expects shared costs in certain operational areas will contribute to an additional ~$0.9 billion in annual cost synergies. These areas include the shared cost of installing video and broadband services. The per unit procurement costs of setup boxes will also be reduced.

For diversified exposure to AT&T, you could consider investing in the iShares Russell 1000 ETF (IWB). This ETF had ~0.9% exposure to the company at the end of June 2015. Please note that IWB also held ~0.1% in Dish Network (DISH)—the satellite-TV provider—on the same date.

You may also get diversified exposure to AT&T by investing in the iShares Core S&P 500 ETF (IVV). This ETF had ~1% exposure to the integrated telecom company at the end of June 2015.


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