DirecTV has finalized a deal to merge with Dish Network, marking a significant shift in the pay-TV landscape. This would allow AT&T Inc. (T  ) to walk out of DirecTV.

What Happened: The merger concludes decades of intermittent discussions, creating a combined entity with 20 million subscribers. This move comes as both companies face declining market shares due to competition from streaming services like Netflix (NFLX  ) and Amazon (AMZN  ) Prime Video. According to CNBC, the agreement was reached on Monday.

DirecTV CEO Bill Morrow stated that the merger will enable the new entity to negotiate better programming packages and offer an enhanced viewer experience. The deal involves DirecTV acquiring Dish DBS, which includes Dish and Sling TV, for $1 and assuming $9.75 billion of Dish's debt.

For the merger to proceed, Dish DBS debtholders must agree to a $1.57 billion reduction in debt. EchoStar, co-founded by Charlie Ergen, will receive $2.5 billion in financing from TPG's credit unit Angelo Gordon and DirecTV to help pay off Dish's $2 billion bond due in November.

AT&T is selling its 70% stake in DirecTV to TPG for $7.6 billion, marking its exit from the pay-TV business. AT&T had previously signed a joint venture with TPG in 2021, valuing DirecTV at about $16 billion.

The merger is expected to close in the fourth quarter of 2025, pending regulatory approvals. Investment banks PJT Partners, Barclays, JPMorgan (JPM  ), Bank of America (BAC  ), Evercore, LionTree, and Morgan Stanley (MS  ) advised on the deal.

Why It Matters: The merger between DirecTV and Dish Network has been a long time coming, with talks reportedly in advanced stages as of late September. The combined entity is set to become the largest pay-TV provider in the U.S., boasting around 20 million subscribers. This move is crucial as both companies have been struggling to retain customers who are increasingly shifting to more affordable and flexible streaming services like Netflix and Amazon Prime Video.

Additionally, AT&T has been focusing on its core business areas. Earlier in September, AT&T CEO John Stankey highlighted the company's strong performance in the Mobility business and the promising growth in fiber penetration rates. This merger allows AT&T to divest its 70% stake in DirecTV, aligning with its strategy to streamline operations and focus on more profitable segments like wireless and fiber services.