Directv

Beginning in 4Q16, AT&T (T) plans to start its new OTT (over-the-top) services: DIRECTV (DTV) NOW, DIRECTV Preview, and DIRECTV Mobile.

AT&T has been boosting its broadband proposition with AT&T GigaPower, a fiber-to-the-premises (or FTTP) service.

In 4Q16, AT&T (T) plans to initiate the three OTT or over-the-top services: DIRECTV (DTV) NOW, DIRECTV Preview, and DIRECTV Mobile.

AT&T acquired DirecTV, the satellite TV provider, in July 2015. The telecom company’s targeted expansion of GigaPower is going as planned.

With the completion of the merger, Charter Communications has the third largest pay-TV base in the United States after AT&T (T) and Comcast (CMCSA).

In this series, we’ll look at the highlights discussed by AT&T (T) at the recent Jefferies Technology, Media, and Telecom Conference. Beginning in 4Q16, AT&T plans to initiate three services: DIRECTV Now, DIRECTV Mobile, and DIRECTV Preview.

At ~$40.5 billion, AT&T’s revenue was in line with the consensus expectations of Wall Street analysts during the quarter.

According to the consensus of Wall Street analysts, the growth momentum in AT&T’s (T) revenue is expected to have continued in 1Q16.

The cross-sell potential for wireless services to DirecTV households was ~15 million. The opportunity for mobile video services was ~21 million households.

Beginning in 4Q16, AT&T plans to initiate the three services—DIRECTV Now, DIRECTV Mobile, and DIRECTV Preview.

AT&T initiated an unlimited wireless combo for DIRECTV and U-verse customers on January 12, 2016.

During the Deutsche Bank Media, Internet, & Telecom Conference held on March 9, 2016, John J. Stephens talked about DIRECTV’s Latin American operations.

AT&T acquired DIRECTV on July 24, 2015.

Brazil was the largest contributor to AT&T’s revenue from Latin American operations during 3Q15.

According to AT&T, the DIRECTV merger is expected to help in bringing down costs associated with operations and general administration, supply chain, and content acquisition.

AT&T and DIRECTV merged on July 24, 2015. At the completion of this transaction, the equity value of DIRECTV was ~$47.1 billion and its net debt was ~$15.9 billion.

Verizon’s (VZ) Marni Walden talked about how the company currently views quad-play offerings.

During the UBS Global Media and Communications Conference, AT&T’s chief executive officer talked about the cost synergies from the DIRECTV acquisition.

On December 9, Amazon announced that it has started a service for Prime members that includes ordering beer, wine, and spirits for delivery in Manhattan.

The DIRECTV (DTV) transaction brought content cost benefits for AT&T (T). This was due in large part to the size of the pay-TV subscriber base that AT&T now has after the acquisition.

In this series, we’ll look at the performance of AT&T’s (T) overall domestic wireless component in 3Q15. Note that AT&T has divided its operations into four new divisions.

During the Deutsche Bank Media, Internet, & Telecom Conference, John J. Stephens talked about AT&T’s domestic video component after the DIRECTV merger.

The acquisition of Cablevision (CVC) by Altice will create the fourth-largest cable operator in the United States. The US cable industry is already feeling increasing competitive pressure from over-the-top players such as Netflix (NFLX).

Wireline services of voice and Internet, as well as the pay-TV offering together with wireless services, is a typical quadruple play bundle.

The adjusted revenue of AT&T’s Strategic Services has grown year-over-year in the range of ~14%–15% since 2Q14.

In broadband, AT&T’s and Comcast’s coverages are comparable, but Verizon’s operations are smaller. In scale in content, AT&T and Comcast outweigh Netflix.

The transaction between AT&T and DIRECTV brings solid cross-selling opportunities due to the non-overlapping services offered by each.

By 2018, AT&T expects multiple cost synergies from the DIRECTV merger in its supply chain, operations and general administration, and content acquisition.

In 2Q15, Dish Network (DISH) ended with 13.93 million pay-TV subscribers—compared to 14.05 million subscribers at the end of 2Q14.

In 2Q15, Dish activated around 638,000 gross new pay-TV subscribers—a 2.70% fall compared to 656,000 gross new pay-TV subscribers in 2Q14.

AT&T’s 2015 Mexican acquisitions include Nextel and Iusacell. In 2Q15, AT&T’s international segment generated $491 million in revenue, including results from both these entities.

The combined retail presence of AT&T–DIRECTV should have a positive impact on the growth of bundled services in both wireline and wireless segments.

The DIRECTV (DTV) merger adds some rich sports content to AT&T’s (T) offerings, including NFL Sunday Ticket and several regional sports networks.

The US over-the-top market includes key players such as Netflix (NFLX), Amazon (AMZN) Instant Prime, and Hulu Plus. The majority of American have used one of these services.

AT&T GigaPower is a fiber-based, high-speed Internet service for consumers and businesses. With the DIRECTV transaction, the service will be expanded to reach 2 million additional customers.

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.

With the resulting larger subscriber base, the DIRECTV deal gives AT&T stronger bargaining power to negotiate content costs with media networks.

Cable companies dominate the US pay-TV market. With the DIRECTV transaction, AT&T is now the biggest US pay-TV provider.

The AT&T–DIRECTV merger agreement was originally signed in May 2014. AT&T (T) has finally acquired DIRECTV (DTV) for ~$67.1 billion, including net debt.

A merger between AT&T and DIRECTV would also allow AT&T to bundle broadband Internet access and voice services with DIRECTV’s video services.

Comcast and Time Warner Cable are the two largest cable providers in the US. Comcast is also the largest pay-TV and Internet provider in the US.

Comcast has consistently added—net—Internet subscribers. At the same time, since 1Q14, it has either lost video subscribers or only marginally added—net—video customers.

Cable Communications revenue increased by ~6.3% year-over-year to ~$11.4 billion in 1Q15. Revenue from the Business Services subsegment increased by ~21.4% year-over-year to ~$1.1 billion.

The merger is expected to bring typical synergies to the combined entity. But AT&T now expects more benefits from the DIRECTV transaction than it anticipated.

OZ Management initiated a new stake in DIRECTV (DTV) by purchasing 3,823,963 shares of the company, representing 0.89% of the fund’s 4Q14 portfolio.

OZ Management initiated a new position in Comcast (CMCSA) in 4Q14 by purchasing 8,063,097 Comcast shares, representing 1.26% of the fund’s 4Q14 portfolio.

In 4Q14, OZ Management initiated new positions in Comcast (CMCSA), Yahoo! (YHOO), Endo International plc (ENDP), DIRECTV (DTV), and CDK Global Inc. (CDK).

Rovi Corporation (ROVI) provides content discovery and personalized, interactive experiences to the entertainment media market.

A set-top box is a device that converts signals transmitted by IP, cable, satellite, and digital terrestrial (DTT) to the output content that we see on TV.

FCC regulations include the FCC’s oversight of must-carry rules. The FCC also regulates basic service pricing in areas where competition is insufficient.

Telecom companies have significantly upgraded their broadband networks to provide high-quality IPTV services and gain more pay TV market shares.

Media networks face stiff competition for acquisition and distribution of content. Quality and exclusivity add to competition across the media value chain.

DIRECTV is a provider of digital television entertainment in the United States and Latin America.

After AT&T won its bid for the AWS-3 spectrum auction, S&P and Moody’s downgraded AT&T’s credit ratings.

AT&T expects that synergies from the DIRECTV merger, as well as its OTT (over-the-top) content offering, will help it in providing video on any device.

Adjusted revenue from IP-based strategic services grew by 14.3% YoY in 4Q14. Adjusted consumer wireline revenue increased by 2.4% during the quarter.

DIRECTV is a direct broadcast satellite, or DBS, service. At the end of 3Q14, DIRECTV had a video subscriber base of ~20 million in the US and ~18 million in Latin America.

The Hospira portfolio includes generic acute-care and oncology injectables, biosimilars, and integrated infusion therapy and medication management products.

One of the major drivers for the Hospira–Pfizer transaction is the expected growth of the sterile injectables and biosimilar markets.

Prior to shareholder approval of the transaction, if Hospira is approached by another suitor, it could discuss a merger with them.

Farallon Capital Management started a new position in Tim Hortons Inc. (THI) during the third quarter of 2014. The position accounted for 2.62% of the fund’s 3Q14 portfolio.

During the company’s 3Q14 earnings call, management said it wanted to get back to an A- credit rating within four or five years. But that won’t be easy.

In the third quarter, Verizon added 114,000 net FiOS TV subscribers. The service is credited with being more cost-effective and having enhanced features.

The size of Berkshire Hathaway’s US long portfolio increased slightly from $107.5 billion in 2Q14 to $107.7 billion in 3Q14.

AQR Capital increased its position in Apple from 0.86% in the previous quarter to 1.24% in the fund’s second quarter U.S. long portfolio.

AQR Capital sold a position in GEO Group Inc. in 2Q14. The company accounted for a 0.0206% position in the fund’s first quarter U.S. long portfolio.

AQR Capital sold a position in Tableau Software Inc. in 2Q14. The company accounted for a 0.0346% position in the fund’s first quarter U.S. long portfolio.

AQR Capital initiated a new position in Equinix in 2Q14. The company accounts for a 0.221% position in the fund’s second quarter U.S. long portfolio.

AT&T has also been able to grow its U-Verse TV subscriber base. AT&T’s subscriber base has increased from 5.0 million in 2Q13 to 5.9 million in 2Q14.

With this service, Verizon could continue to gain pay-TV subscribers despite the threat from video streaming providers like Netflix (NFLX).

Although the pace of growth for Verizon has slowed down a little in the subscription TV market, it still continues to gain subscribers in an otherwise declining pay-TV market.

Arbs generally avoid utility deals—and for good reason. Typically, the companies have an aggressive expected timeline and these deals don’t close on time.

Time Warner Cable (TWC) and Comcast (CMCSA) must get past the New York State Public Service Commission as well as other state and local authorities.

On February 12, 2014, Time Warner Cable (TWC) and Comcast (CMCSA) agreed to merge. The two companies provide cable TV and broadband access separate geographic areas.

As an investor, you should always do these calculations based on different timing estimates. Time Warner Cable and Comcast are guiding for an end-of-the-year close.

In the risk arbitrage world, a 2% spread means a deal without much “hair” on it. The market is assigning a high probability of closing.

Integrys (TEG) is a diversified energy holding company headquartered in Chicago, Illinois. Wisconsin Energy (WEC) is buying Integrys.

In merger arbitrage, you’ll generally buy the acquired company’s stock and sell short the acquiring company’s stock. So how will this play out when you look at the Integrys-Wisconsin deal?

Frustrated by his inability to get anything done legislatively through Congress, the President has said he will go at it alone and get done what he can through the powers of his office.

On June 15, 2014, Medtronic (MDT) and Covidien (COV) reached an agreement to merge via a scheme of arrangement. The two companies more or less offer complementary goods.

The Covidien-Medtronic deal is a scheme of arrangement, which is an English-style merger where a court has to approve the transaction once the votes are in.

To perform merger arbitrage, the investor will generally buy the stock of the company being acquired and sell short the stock of the acquiring company.

Risk arbitrage as a strategy is basically the act of picking up nickels in front of a steamroller. When a deal successfully closes, you get a nickel. When a deal breaks, you lose a buck.

Once the SEC approves the proxy, a vote is scheduled. Usually, the last condition for a deal is the vote of the target shareholders.

If there’s a vote for the deal, the next step will be the release of the preliminary proxy statement. The proxy statement contains all the data in the merger agreement as well as some other important pieces of data.

Typically, approaches end up with a deal. Why? The target board of directors has a fiduciary duty to shareholders to get the best price for the company.

Not all deals are cash deals, however. Often companies will issue stock in lieu of giving cash for a deal. This adds a layer of complication to the process and also some risk factors we need to consider.

What are the components of a risk arbitrage spread? There are a number of factors that figure into a trade. Let’s look at a typical cash deal first.

Merger arbitrage, otherwise known as “risk arbitrage,” is an investment strategy that primarily focuses on mergers and capturing the spreads on announced deals.

We should analyze whether AT&T’s acquisition of DirecTV was a good choice or not—especially when the Pay TV market is undergoing a structural decline.

AT&T will be paying DirecTV $67 billion, which becomes an expensive acquisition when we consider that DirecTV lacks any wireless spectrum.

A few weeks ago, AT&T (T) agreed to buy DirecTV (DTV) for a total valuation of $67 billion. According to the deal, AT&T will pay $95 per share to DirecTV, split between $28.5 in cash and $66.5 in stock.