Summary
- 3 risks to the AT&T/DirecTV deal are: 1) acquisition is blocked, 2) NFL deal falls through, 3) AT&T stock drops.
- Environment appears to favor the deal. AT&T’s stable stock price is a positive.
- Assuming deal goes through then an investor could make money going long the stock alone or with some puts on AT&T for protection.
On May 18th, AT&T (NYSE:T) announced its agreement to buy DirecTV (DTV) for $95 per share in a stock and cash deal based on A&T’s stock price as of the close of May 16th. (The release can be found here). DTV trades below this deal price and so investors who purchase DTV have potential upside if the deal proceeds.
There are three main risks to this trade:
- The acquisition is blocked by the regulator; however, considering that the Time Warner/Comcast merger appears to be proceeding, this deal shouldn’t meet much opposition. If that deal is blocked then this one too is at risk.
- The NFL does not renew its contract with DTV then T will back out of the deal. The NFL though has been in partnership with DTV since 1994 and since “there isn’t another serious contender”, according to the Wall Street Journal, it appears that this is a not an issue.
- T stock price drops significantly thus resulting in a lower total deal value for DTV shareholders.
To read the entire article go to: Playing The DirecTV Acquisition
