tessa8940
10-24-2007, 03:27 PM
The Dish on AT&T's Satellite Plans
By DIONNE SEARCEY and DANA CIMILLUCA
October 24, 2007; Page C1
AT&T Inc. has been circling the satellite-television sector for several years, contemplating a bid for one of the two major players. Now, with consolidation in the telephone industry mostly done, AT&T appears to be getting ready to swoop in.
Investors should be wary.
http://online.wsj.com/public/resources/images/it_earnings-cheatsheet209142004171604.gif MORE ON EARNINGS
• Earnings Cheat Sheets: Bone up on what to expect from other major companies as they report quarterly earnings.
• Subpar Scorecard: How credit, housing have hit earnings
AT&T has been consulting lawyers in Washington about how long it would take to get government approval to purchase either EchoStar Communications Corp. or DirecTV Group Inc., people familiar with the matter said. If it does make a bid for one of the satellite providers, AT&T could unveil the offer before year's end in hopes of getting federal antitrust officials to approve the combination before a new administration takes over, these people say.
A final decision on a bid hasn't been made. AT&T hasn't even decided which satellite-TV firm to go after, although a purchase of EchoStar, of Englewood, Colo., could be easier to undertake because it has a less-complicated ownership situation. There also isn't any guarantee that either company would be available.
But what AT&T shareholders and other investors are likely to focus on is the potential cost of a deal -- between $30 billion and $40 billion, depending on the target -- and the San Antonio telecommunications giant's ability to absorb another acquisition after last year's purchase of BellSouth Corp.
"It would create uncertainty," said John Krause, a stock-research analyst at Thrivent Investment Management of Minneapolis, which owns 2.4 million shares of AT&T. He doesn't rate AT&T's shares.
That could be bad news for AT&T stock, which is currently trading near a 52-week intraday high of $42.97. In 4 p.m. composite trading yesterday on the New York Stock Exchange, AT&T's shares were up 85 cents, or 2.1%, to $42.02, giving the company a market value of $256.28 billion. The shares are trading at about 21 times per-share earnings for the past 12 months.
http://online.wsj.com/public/resources/images/OB-AS729_IEDGT_20071023230423.gif The stock's rise came after AT&T reported strong third-quarter earnings yesterday, with net income rising 41% to $3.06 billion and revenue jumping 93% to $30.13 billion. Last year's figures don't include results from BellSouth and its 40% stake in Cingular Wireless, which AT&T took full control of with its acquisition of BellSouth late last year. AT&T added two million new wireless customers in the quarter, bringing its total to 65.7 million. It said it sold 1.4 million Apple Inc. iPhones since the launch of the device in late June.
AT&T Chief Financial Officer Rick Lindner declined to comment about potential acquisitions. EchoStar and DirecTV also declined to comment.
Talk about AT&T's interest in a satellite-TV firm has swirled for several years, as the company, like rival Verizon Communications Inc., has made a big push into offering television service to counter cable-TV operators' push into phone service. AT&T announced that through the third quarter, it had signed up 126,000 subscribers for its "U-verse" TV service, which uses Internet-based technology. The company says it will offer U-verse to 18 million homes by the end of next year, a project estimated to cost $6.5 billion.
A satellite deal would give AT&T a way of fending off rival cable operators luring customers with low-priced bundles of phone, TV and high-speed Internet services. A purchase also would allow AT&T to negotiate less expensive content deals for its TV service. And it would save AT&T the cost of rolling out U-verse in certain parts of the company's expansive territory where laying the fiber optics is expensive.
Still, the premium AT&T would have to pay to land a satellite concern may offset those cost savings. Of the two satellite firms, DirecTV, which has 16.3 million customers in the U.S., versus EchoStar's 13.6 million, would be cheapest as measured by a multiple of its earnings. DirecTV, of El Segundo, Calif., has a market value of about $30 billion, roughly 21 times earnings for the past 12 months.
But DirecTV would be a complicated acquisition. John Malone's Liberty Media Corp. late last year agreed to buy News Corp.'s 38.5% stake in DirecTV, although the deal has yet to be approved by regulators. (News Corp. has agreed to acquire Dow Jones & Co., the publisher of The Wall Street Journal.)
Acquiring all of DirecTV would likely require spending as much as $40 billion, analysts speculate, the equivalent of more than 26 times earnings. Liberty would also have to hold on to about 25% of the company for several years for tax reasons. A Liberty representative declined to comment on whether the company would be interested in selling.
EchoStar would require AT&T to negotiate with the satellite company's chief executive and controlling shareholder, Charlie Ergen. Some analysts and industry officials are skeptical that Mr. Ergen, renowned as a maverick and often stubborn manager, would sell the company he founded. To get his agreement may require AT&T to offer a big price, perhaps as much as $30 billion, analysts estimate, about 45 times its earnings over the past 12 months, according to Capital IQ.
Still, EchoStar makes sense in a number of ways. AT&T already has an investment in Echostar -- it put $500 million into the satellite firm in 2003. The two are partners in offering "Homezone," a service using a television set-top box that blends satellite TV with on-demand movies and other services off the Internet. A deal also would be simplified if EchoStar goes ahead with its recently announced plan to separate its satellite-television business, known as Dish Network, from businesses such as its set-top-box maker.
--Andy Pasztor and Jessica E. Vascellaro contributed to this article.
By DIONNE SEARCEY and DANA CIMILLUCA
October 24, 2007; Page C1
AT&T Inc. has been circling the satellite-television sector for several years, contemplating a bid for one of the two major players. Now, with consolidation in the telephone industry mostly done, AT&T appears to be getting ready to swoop in.
Investors should be wary.
http://online.wsj.com/public/resources/images/it_earnings-cheatsheet209142004171604.gif MORE ON EARNINGS
• Earnings Cheat Sheets: Bone up on what to expect from other major companies as they report quarterly earnings.
• Subpar Scorecard: How credit, housing have hit earnings
AT&T has been consulting lawyers in Washington about how long it would take to get government approval to purchase either EchoStar Communications Corp. or DirecTV Group Inc., people familiar with the matter said. If it does make a bid for one of the satellite providers, AT&T could unveil the offer before year's end in hopes of getting federal antitrust officials to approve the combination before a new administration takes over, these people say.
A final decision on a bid hasn't been made. AT&T hasn't even decided which satellite-TV firm to go after, although a purchase of EchoStar, of Englewood, Colo., could be easier to undertake because it has a less-complicated ownership situation. There also isn't any guarantee that either company would be available.
But what AT&T shareholders and other investors are likely to focus on is the potential cost of a deal -- between $30 billion and $40 billion, depending on the target -- and the San Antonio telecommunications giant's ability to absorb another acquisition after last year's purchase of BellSouth Corp.
"It would create uncertainty," said John Krause, a stock-research analyst at Thrivent Investment Management of Minneapolis, which owns 2.4 million shares of AT&T. He doesn't rate AT&T's shares.
That could be bad news for AT&T stock, which is currently trading near a 52-week intraday high of $42.97. In 4 p.m. composite trading yesterday on the New York Stock Exchange, AT&T's shares were up 85 cents, or 2.1%, to $42.02, giving the company a market value of $256.28 billion. The shares are trading at about 21 times per-share earnings for the past 12 months.
http://online.wsj.com/public/resources/images/OB-AS729_IEDGT_20071023230423.gif The stock's rise came after AT&T reported strong third-quarter earnings yesterday, with net income rising 41% to $3.06 billion and revenue jumping 93% to $30.13 billion. Last year's figures don't include results from BellSouth and its 40% stake in Cingular Wireless, which AT&T took full control of with its acquisition of BellSouth late last year. AT&T added two million new wireless customers in the quarter, bringing its total to 65.7 million. It said it sold 1.4 million Apple Inc. iPhones since the launch of the device in late June.
AT&T Chief Financial Officer Rick Lindner declined to comment about potential acquisitions. EchoStar and DirecTV also declined to comment.
Talk about AT&T's interest in a satellite-TV firm has swirled for several years, as the company, like rival Verizon Communications Inc., has made a big push into offering television service to counter cable-TV operators' push into phone service. AT&T announced that through the third quarter, it had signed up 126,000 subscribers for its "U-verse" TV service, which uses Internet-based technology. The company says it will offer U-verse to 18 million homes by the end of next year, a project estimated to cost $6.5 billion.
A satellite deal would give AT&T a way of fending off rival cable operators luring customers with low-priced bundles of phone, TV and high-speed Internet services. A purchase also would allow AT&T to negotiate less expensive content deals for its TV service. And it would save AT&T the cost of rolling out U-verse in certain parts of the company's expansive territory where laying the fiber optics is expensive.
Still, the premium AT&T would have to pay to land a satellite concern may offset those cost savings. Of the two satellite firms, DirecTV, which has 16.3 million customers in the U.S., versus EchoStar's 13.6 million, would be cheapest as measured by a multiple of its earnings. DirecTV, of El Segundo, Calif., has a market value of about $30 billion, roughly 21 times earnings for the past 12 months.
But DirecTV would be a complicated acquisition. John Malone's Liberty Media Corp. late last year agreed to buy News Corp.'s 38.5% stake in DirecTV, although the deal has yet to be approved by regulators. (News Corp. has agreed to acquire Dow Jones & Co., the publisher of The Wall Street Journal.)
Acquiring all of DirecTV would likely require spending as much as $40 billion, analysts speculate, the equivalent of more than 26 times earnings. Liberty would also have to hold on to about 25% of the company for several years for tax reasons. A Liberty representative declined to comment on whether the company would be interested in selling.
EchoStar would require AT&T to negotiate with the satellite company's chief executive and controlling shareholder, Charlie Ergen. Some analysts and industry officials are skeptical that Mr. Ergen, renowned as a maverick and often stubborn manager, would sell the company he founded. To get his agreement may require AT&T to offer a big price, perhaps as much as $30 billion, analysts estimate, about 45 times its earnings over the past 12 months, according to Capital IQ.
Still, EchoStar makes sense in a number of ways. AT&T already has an investment in Echostar -- it put $500 million into the satellite firm in 2003. The two are partners in offering "Homezone," a service using a television set-top box that blends satellite TV with on-demand movies and other services off the Internet. A deal also would be simplified if EchoStar goes ahead with its recently announced plan to separate its satellite-television business, known as Dish Network, from businesses such as its set-top-box maker.
--Andy Pasztor and Jessica E. Vascellaro contributed to this article.