AT&T closes $85bn Time Warner deal

August 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

August 2018 Issue

Following months of wrangling and the threat of a lawsuit, AT&T Inc. has finally completed its $85bn acquisition of Time Warner Inc – a deal which combines global media and entertainment leaders Warner Bros., HBO and Turner with AT&T’s leadership in video, mobile and broadband customer relationships.

Under the terms of the deal, Time Warner shareholders received 1.437 shares of AT&T common stock, in addition to $53.75 in cash, per share of Time Warner. As a result, AT&T issued 1.185 million shares of common stock and paid $42.5bn in cash. Including net debt from Time Warner, AT&T has $180.4bn in net debt.

AT&T expects the acquisition of Time Warner to provide significant financial benefits, including increased synergies to $2.5bn – $1.5bn in annualised cost synergies by end of year three following close and $1bn of annualised revenue synergies by end of year three – and a solid balance sheet and improved credit metrics.

“The content and creative talent at Warner Bros., HBO and Turner are first-rate,” said Randall Stephenson, chairman and chief executive of AT&T Inc. “Combine all that with AT&T’s strengths in direct-to-consumer distribution and we offer customers a differentiated, high-quality, mobile-first entertainment experience. We are going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.”

According to Mr Stephenson, the future of media entertainment is rapidly converging around three elements. First, premium content: a broadly distributed, robust premium content portfolio that combines leading movies and shows from Warner Bros., HBO and Turner, along with targeted digital content. Second, direct to consumer distribution (D2C): AT&T has more than 170 million D2C relationships across its TV, video streaming, mobile and broadband services in the US, mobile in Mexico, TV in Latin America and D2C digital properties. Third, high-speed networks: AT&T’s leading wireless and fibre network, including investments in new technology such as 5G, will provide the network bandwidth required as customers increase engagement with premium video and emerging 4K and virtual reality content.

AT&T’ s acquisition of Time Warner also sees AT&T executive Jeff Stankey take the reins as chief executive of WarnerMedia – the name of the new entity containing Time Warner’s operating units. “Why WarnerMedia? The short answer is that it tested very well externally as a naming convention that holds the valuable HBO, Turner and Warner Bros. brands,” said Mr Stankey. “In addition, we felt that maintaining an element of the proud, established and successful Time Warner is a testament and sign of respect for both its history and for you, as architects of that legacy.”

Mr Stankey also stated that the decision to choose WarnerMedia was an attempt to clear up the difficulty many people have distinguishing between Time Warner, the media company, and Time Warner, the former cable company. “Our consumer research suggests this confusion is not going away any time soon,” added Mr Stankey. “So, it is easier and more economical to change the name, than invest in advertising to resolve the confusion.”

The acquisition of Time Warner has also seen the departure of Turner chief executive John Martin, with HBO and Warner Bros. chief executives – Richard Plepler and Kevin Tsujihara respectively – retaining their positions. In addition, Jeff Bewkes, former chairman and chief executive of Time Warner, will remain as a senior adviser during a transition period before retiring.

Previously, the US Department of Justice (DOJ) had attempted to block the AT&T/Time Warner deal on antitrust grounds, stating that it would disadvantage customers. However, US district court judge Richard Leon rejected this argument and the acquisition was allowed to proceed.

Fraser Tennant