DIRECTV and AT&T Shares Fall in the Wake of Merger Agreement

Shares of DIRECTV and AT&T slumped on Monday, along with the Dow Jones, as Google posted a modest rally.

May 19, 2014 at 11:30AM

The Dow Jones Industrial Average (DJINDICES:^DJI) was up 25 points as of 11:45 a.m. EDT. AT&T (NYSE:T) was one of the index's biggest laggards, while shares of DIRECTV (NASDAQ:DTV) also moved lower. Shares of Google (NASDAQ:GOOG) rose 1.3%.

Dallas Fed Head to speak
Dallas Federal Reserve Bank President Richard Fisher will speak in Dallas on a panel about the role of the Federal Reserve. Over the years, Fisher has been a noted hawk, playing down the gains that come from further Fed-fueled stimulus and warning about the potential for inflation.

Fisher is a voting member of the Federal Open Market Committee, so any comments he makes regarding the Fed's role could move the Dow Jones later in Monday's session. 


Source: Wikimedia Commons.

AT&T agrees to buy DIRECTV
AT&T and DIRECTV on Sunday announced a merger agreement under which the telecom giant will pay $95 per share for the pay-TV provider. Shares of DIRECTV were down more than 1% in late-morning trading, suggesting the deal may not be as good as some shareholders had hoped.

AT&T's near-1% tumble might be because the company will have to pay more than $67 billion for DIRECTV, including its debts. AT&T gets a business that is generating cash flow, but there are obvious doubts about the long-term viability of DIRECTV's pay-TV model.

Still, the combined entity does have some obvious synergies. AT&T has only a few million subscribers to its U-verse pay-TV program. DIRECTV has no major Internet offering, or for that matter, phone service -- wireless or otherwise. As one entity, AT&T/DirecTV could offer subscribers a bundle of services: pay TV, phone, and high-speed broadband Internet.

AT&T could also use DIRECTV's deals with content providers to stream content over Internet-connected devices such as smartphones and tablets, and DIRECTV's services could be sold through AT&T's large network of retail stores.

Federal regulators could still block the deal, but as U-verse remains a relatively small player in the larger pay TV landscape, it would be surprising if the deal faces a major struggle.

Google's YouTube said to plan Twitch buy
Google, meanwhile, could also be planning an acquisition -- the search giant's YouTube unit is said to be mulling a $1 billion deal to acquire Twitch, an upstart streaming service.

Twitch, like YouTube, is focused on providing user-created Internet video, but is not truly a competitor. Twitch's service focuses entirely on streaming live video game matches, and is integrated with the newest consoles (PlayStation 4 and Xbox One) to allow players to easily upload videos of themselves playing games to the Internet.

Buying Twitch would be a big bet on the future of online video gaming, but given its impressive traffic figures (which at times surpass the largest social networking sites) it might not be a bad deal for the search giant.

Why is AT&T buying DirecTV?
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends DirecTV and Google (C shares). The Motley Fool owns shares of Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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