AT&T TIME WARNER MERGER - DEAL OR NOT?

THE POS­SI­BLE TAKEOVER OF TIME WARNER BY AT&T HAS AL­READY PROVED CON­TRO­VER­SIAL WITH BOTH US PRES­I­DEN­TIAL CAN­DI­DATES RAIS­ING CON­CERNS. JAMES PEARCE TAKES A LOOK

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AT&T’S de­ci­sion to buy Time Warner in an $85bil­lion deal could give the op­er­a­tor the chance to dom­i­nate how we con­sume con­tent – if is ap­proved by reg­u­la­tion.

When the US car­rier an­nounced the takeover along­side its Q3 fi­nan­cial re­sults last month, it said it wanted to “bring a fresh ap­proach to how the me­dia and com­mu­ni­ca­tions in­dus­try works for cus­tomers, con­tent cre­ators, dis­trib­u­tors and ad­ver­tis­ers.”

The agree­ment will see AT&T take con­trol of all three of Time Warner’s busi­ness arms: Warner Broth­ers film studios, pre­mium con­tent ser­vice HBO; and Turner Broad­cast­ing Sys­tem, which over­sees TV chan­nels CNN, HLN, TNT, TBS and the Car­toon Net­work.

“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,” said AT&T CEO Ran­dall Stephen­son. “We will have the world’s best pre­mium con­tent with the net­works to de­liver it to ev­ery screen. A large cus­tomer pain point is pay­ing for con­tent once but not be­ing able to ac­cess it on all de­vices, any­where the cus­tomer wants it.

“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. It’s it a great fit, and it cre­ates im­me­di­ate and long-term value for our share­hold­ers.”

When the deal was an­nounced on 23 Oc­to­ber this year, it came in for im­me­di­ate crit­i­cism. Both pres­i­den­tial can­di­dates raised con­cerns. Demo­cratic can­di­date Hil­lary Clin­ton warned of a “num­ber of ques­tions and con­cerns” about the deal, while Repub­li­can nom­i­nee Don­ald Trump said he would block the deal should he take the White House in this month’s elec­tion.

It won’t be the pres­i­dent who de­cides on the deal, with the fi­nal rul­ing up to the US Depart­ment of Jus­tice (DOJ). It could also be sub­ject to scru­tiny from the Fed­eral Com­mu­ni­ca­tions Com­mis­sion over li­censes that will be trans­ferred to AT&T as part of the deal.

In or­der to block it, the DOJ would need to prove that it harms com­pe­ti­tion. How­ever, the FCC can block any deal or trans­fer of li­cence which it over­sees, if it finds it is not in the ‘pub­lic in­ter­est’.

Stephen­son re­mained con­fi­dent that reg­u­la­tors would see the ben­e­fits of the deal for con­sumers. He ex­plained on an an­a­lyst call: “If the deal were blocked, it could prove costly for AT&T. As part of the agree­ment, the car­rier will be ob­li­gated to pay Time Warner a break-up fee of $500 mil­lion if reg­u­la­tors stop the ac­qui­si­tion from go­ing through.

This is the lat­est ex­am­ple of a ma­jor US car­rier at­tempt­ing to di­ver­sify its port­fo­lio, but it is also one of the big­gest. Ri­val Ver­i­zon Com­mu­ni­ca­tions snapped up AOL, for­merly part of Time Warner, for $4.4 bil­lion in a deal sealed in June 2015. AOL and Time Warner merged in 2000, but the for­mer was spun off in 2009 as a dig­i­tal me­dia com­pany.

Ver­i­zon is also in the process of buy­ing Ya­hoo, al­though a shadow of doubt has been cast over that ac­qui­si­tion since it was re­vealed that Ya­hoo was sub­ject to a data breach that saw hack­ers ac­cess the de­tails of more than 500 mil­lion users.

Though Ver­i­zon has not com­mented on the AT&T buy­out, T-mo­bile chief ex­ec­u­tive John Legere did make ref­er­ence to it through his Twit­ter page. Legere ac­cused AT&T of us­ing the ac­qui­si­tion to di­vert at­ten­tion away from a dis­ap­point­ing quar­terly fi­nan­cial re­port.

Al­though mov­ing into con­tent could be key for all car­ri­ers go­ing for­ward, the price of the deal raised eye­brows. It re­mains to be seen if it will prove a fail­ure like Time Warner’s last ma­jor merger (with AOL) – if it even over­comes all of the reg­u­la­tory hur­dles ex­pected to spring up.

To keep up to date with M&A ac­tiv­ity at­tend Metro Con­nect, 31 Jan­uary to 1 Fe­bru­ary 2017, Mi­ami, USA

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