SBC COMMUNICATIONS Analysts criticize acquisition bid
Many analysts say SBC's proposed takeover of DirecTV would hurt earnings.
SAN ANTONIO (AP) -- Already carrying a basketful of soft-economy challenges, phone giant SBC Communications Inc. has hit a wall of skepticism about its proposed multibillion-dollar bid for satellite television provider DirecTV.
Many analysts say such a deal wouldn't solve the problems that have caused SBC's revenue to drop nearly 20 percent in the past two years, with an even steeper earnings slide. Profit pressures have prompted the San Antonio-based telecom giant to lay off nearly 20,000 workers since late 2001.
Competition and struggle
A raft of competitors are biting off chunks of SBC's core local phone franchise, and its Cingular Wireless joint venture is struggling to post any kind of growth.
"Making a serious foray into this industry at this stage, when there are so many other problems that SBC and its peers are grappling with, seems a bit premature," said Qaisar Hasan from Utendahl Capital Partners in New York. "It would be a huge management distraction."
F. Drake Johnstone, an analyst with Davenport & amp; Co. in Richmond, Va., was more succinct: "They ought to get their own house in order before they consider a major acquisition."
SBC shares fell 79 cents, or 3.2 percent, to $23.71 on the New York Stock Exchange on Tuesday, the second straight decline since reports of the company's interest in DirecTV emerged Friday.
SBC has declined to speak about the DirecTV reports, while Hughes Electronics Corp., a subsidiary of General Motors Corp., has stated that it is considering a variety of options regarding its ownership of DirecTV.
Earnings and synergy
Many telecom analysts say buying DirecTV, the nation's No. 2 pay-television company, would dilute SBC's earnings and would not create synergies with the company's existing phone-oriented businesses.
SBC already offers its customers satellite TV service through a marketing partnership with DirecTV rival EchoStar Communications, owner of the Dish Network.
Not all analysts, however, are talking down an SBC-DirecTV combination.
"The cable companies are a major threat, and SBC might be willing to absorb some dilution [in earnings] in order to have a weapon to compete against the cable companies," said Patrick Comack from Guzman & amp; Co. in Miami. "I don't think it's such a bad idea -- it's just a matter of price."
The SBC-DirecTV reports have spurred comparisons to AT & amp;T Corp.'s entry into cable by spending $120 billion for industry giants Tele-Communications Inc. and MediaOne Group in the late 1990s.
TCI and MediaOne were later rebranded as AT & amp;T Broadband, which the parent company sold to Comcast Corp. for less than half that purchase price last November.
Comack said AT & amp;T's costly experience shouldn't be projected onto a SBC-DirecTV deal.
"SBC management is significantly superior to AT & amp;T," Comack said.