AT&T to acquire Time Warner in $85bn deal

December 2016 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

American communications giant AT&T Inc. announced that it is to acquire multimedia firm Time Warner Inc. in a deal worth $85bn – the largest deal announced in 2016 to date. The combination of the two companies is another step in the convergence of the media and telecommunications industries, though the transaction is likely to be controversial, with politicians and analysts alike expressing concern.

According to a joint statement released by the firms in late October, AT&T will pay $107.50 a share for Time Warner, a big premium – 36 percent – over where the company’s stock was trading in the week prior to the deal being announced. Though the deal is backed by the boards of both companies, it is still subject to various closing conditions, including winning the approval of both firms’ shareholders, as well as the US Department of Justice. Given the various onerous regulatory conditions, the transaction is not expected to close until the end of 2017.

Should the cash and stock deal win approval, the newly merged company will be led by AT&T chief executive Randall Stephenson. Time Warner’s CEO Jeff Bewkes will also remain on an interim basis to help ease the transition.

“This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers,” said Mr Stephenson. “Premium content always wins. It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen. We’ll have the world’s best premium content with the networks to deliver it to every screen. A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that. We intend to give customers unmatched choice, quality, value and experiences that will define the future of media and communications.”

The tie-up between the two firms would see AT&T’s distribution network, which includes 130 million mobile phone customers and 25 million pay-TV subscribers, benefit from content from the Warner Bros. film studios and as well as the company’s cable television platforms including HBO and CNN.

Mr Bewkes said: “This is a great day for Time Warner and its shareholders. Combining with AT&T dramatically accelerates our ability to deliver our great brands and premium content to consumers on a multiplatform basis and to capitalise on the tremendous opportunities created by the growing demand for video content. That’s been one of our most important strategic priorities and we’re already making great progress – both in partnership with our distributors, and on our own by connecting directly with consumers.

Joining forces with AT&T will allow us to innovate even more quickly and create more value for consumers along with all our distribution and marketing partners, and allow us to build on a track record of creative and financial excellence that is second to none in our industry. In fact, when we announce our 3Q earnings, we will report revenue and operating income growth at each of our divisions, as well as double-digit earnings growth.”

Though both parties to the deal have hailed the advantages of combining the two industry giants into one superpower, there has been considerable opposition to the merger. At the time the deal was announced on 23 October, spokespeople from both the Clinton and Trump presidential campaigns, in the final throws of their White House bids, were quick to criticise the deal, raising concerns about the level of consolidation the deal would bring to the telecommunications industry. Lawmakers from both sides of the aisle have also expressed concern.

Previous attempts to consolidate the media and telecommunications space, such as Comcast’s acquisition of NBCUniversal, and how that move has affected consumers, also led to serious scepticism in some circles. Though the NBCUniversal/Comcast deal was eventually approved, after 13 months of regulatory review, it did come with some caveats. A similar type of deal could be struck in order to allow AT&T’s purchase of Time Warner to proceed.

The spectre of AOL’s failed merger with Time Warner – agreed in 2000 and described as the worst merger of all time – still looms large when considering consolidation deals such as the proposed AT&T/Time Warner tie up.

Whether news of this deal sparks a new wave of activity in the telecoms and media space, only time will tell.

Richard Summerfield