AT&T, Time Warner defend merger as politicians challenge
Shares of both companies fall amid concerns over deal clearance
NEW YORK, Oct 24, (Agencies): AT&T and Time Warner, home of CNN and HBO, insisted Monday that their proposed mega-merger will benefit consumers as they gird for anti-trust challenges from politicians and regulators.
The merger, valued at $108.7 billion, will join one of the most dominant telecommunications company with a leading provider of entertainment video and broadcasting, allowing smoother and more innovative content delivery to consumers, the two said.
But they will face tough questioning over whether such a combination will be too powerful, stifling outside video content creators while forcing consumers to their brand.
Shares of both companies fell Monday as investors saw a difficult road ahead for the deal, with both Democratic and Republican campaigns for the White House raising questions.
Around midday AT&T shares were off 1.5 percent at $36.92, and were 6.3 percent down from just before news of the looming deal leaked out on Thursday.
Time Warner shares lost 2.3 percent to 87.44, but were still well up from the $79.55 level they traded at before news of the merger.
AT&T is, after Comcast, the second largest US supplier of mobile phone, landline, internet and pay television services. Buying Time Warner will give it control of valuable top entertainment brands like Warner Bros, CNN, HBO, Cartoon Network, TNT, for delivery over multiple platforms.
The chief executives of both companies said Monday that this would lead to more seamless and innovative entertainment delivery to consumers, and allow advertisers to better target the right audiences.
“We need to go where the consumers are going, and that’s increasingly mobile,” said Time Warner Chairman and CEO Jeff Bewkes in a conference call.
Time Warner has traditionally delivered its programs via cable television subscriptions, but increasingly consumers are turning to watching via internet or mobile connections.
Randall Stephenson, AT&T’s chairman and CEO, said that negotiating rights with content suppliers for mobile and internet delivery had been too onerous, and that owning the content would eliminate that barrier.
The merger “would really remove a lot of the friction in the industry, “he said. “Now we can begin to innovate our content much quicker.”
The two stressed that the combination should pass an antitrust reviews by the Department of Justice, the US Senate and possibly the Federal Communications Commission.
The merger is a “vertical” combination of two different businesses, they said, not the type of “horizontal” combinations joining two companies competing in the same businesses that the Justice Department frequently objects to.
“The legacy separation between video and distribution is really getting in the way of what consumers want,” said Bewkes.
After the deal was announced Saturday public interest groups, politicians and regulators signalled tough scrutiny of the deal. “It is too much concentration of power in the hands of too few,” said Republican presidential nominee Donald Trump. Tim Kaine, Democrat Hillary Clinton’s vice presidential running mate, said he “share(s) the concerns and questions,” over the deal.
Meanwhile Senators Mike Lee and Amy Klobuchar, who head the Senate Judiciary Subcommittee on Antitrust, said they would investigate the deal “to ensure that it does not harm consumers.”
One issue could draw particular attention: how the merged company treats content from outside providers. AT&T said it is already forced to be fair by “net neutrality” rules that prevent it from discriminating.
But analysts are worried that if the merged companies plan to favor inhouse content, for instance by not counting streamed Time Warner video under data limits for mobile customers, it could strengthen critics of the deal.
Mike McCormack, an analyst at Jeffries, expects “a “lengthy and arduous” review by regulators.
“While the deal inherently does not remove a competitor, approval is by no means a given,” he said in a client note.
“The changing political landscape could also influence the review.”
Stephenson said it remains to be seen how regulators view the merger.
“The sausage will come out how the sausage comes out,” he told analysts.
Time Warner has agreed to pay $1.725 billion to AT&T if the media company backs out of the massive deal to be acquired by the telecom company.
Under the terms of AT&T’s $85.4 billion bid for Time Warner, the fee would be payable if Time Warner’s board has a change of heart prior to stockholder approval or if Time Warner receives a higher offer, according to SEC filings Monday.
AT&T reserves the right to terminate the Time Warner deal if the telco’s board changes its mind prior to stockholder approval.
Meanwhile, AT&T will pay Time Warner $500 million “in respect of its time and expenses” if the merger is not consummated under certain conditions, including in the event the deal is blocked by regulators, per the filing. The deal was announced by the companies Saturday night, and is expected to face close scrutiny by US officials.
Time Warner chairman-CEO Jeff Bewkes — who said he will exit the company after the AT&T acquisition following a transition period — did not receive any retention-incentive consideration related to the AT&T deal, according to TW’s 8-K filing with the SEC. However, he is eligible for special-retention restricted stock units in February 2017 worth twice the target value of his annual long-term incentive compensation.