AT&T’s $119b Time Warner buy tipped to shake up media landscape
Grab some popcorn — AT&T wants to take you to the movies.
AT&T is buying Time Warner, the owner of the Warner Bros movie studio as well as HBO and CNN, for US$85.4 billion ($119.2b) in a deal that could shake up the media landscape.
The buy would combine a telecom giant that owns a leading cellphone business, DirecTV and internet service with the company behind some of the world’s most popular entertainment, including Game of Thrones, the Harry Potter franchise and professional basketball. It would be the latest tie-up between the owners of digital distribution networks — think cable and phone companies — and entertainment and news providers, all aimed at shoring up businesses upended by the internet.
It would make Time Warner the target of the two largest media-firm buys on record, says Dealogic. The highest was AOL’s disastrous US$94b acquisition of Time Warner at the end of the dot-com boom.
Regulators would have to sign off on the deal, no certain thing. The prospect of another media giant on the horizon has already drawn fire on the US presidential campaign trail. Republican nominee Donald Trump vowed to kill it if elected because it concentrates too much “power in the hands of too few”.
Senator Al Franken said the deal “raises some immediate flags about consolidation in the media market”.
Shares of AT&T, as is typical of acquirers in large deals, fell 3 per cent on reports of a deal in the works.
Media merger mania
Companies that provide phone and internet connections are investing in media to find new revenue sources.
Verizon bought AOL last year and has now proposed a deal for Yahoo to build a digital-ad business. Comcast bought NBCUniversal in 2011.
When AT&T’s bid to buy wireless competitor T-Mobile was scrapped in 2011 after opposition from regulators, it doubled down on television by buying satellite-TV firm DirecTV for US$48.5b. AT&T is expected to offer a streaming TV package, DirecTV Now, by the end of the year.
The pressure on AT&T has been intense. The phone company has to contend with slowing growth in wireless services, given most Americans already have smartphones. And it faces new competitors for that business from cable companies. Comcast plans to launch a cellphone service next year. Buying Time Warner may be “a good defensive move” against Comcast as it continues stretching into new businesses, New Street Research analyst Jonathan Chaplin said.
Comcast also bought movie studio DreamWorks Animation in August.
Potential downsides
Even if the AT&T deal overcomes opposition in Washington, regulators might saddle the combined company with so many conditions the deal no longer makes sense. Then there is the US$85b it is handing over to Time Warner, almost 40 per cent more than investors thought the company was worth a week ago.
Macquarie Capital analyst Amy Yong recalled many celebrated media deals of the past have turned into duds, mentioning the Time Warner-AOL deal in particular. AT&T, she noted, was paying “a huge price”.
Still, Yong said AT&T and other phone firms feel they have to act because the threats to their business seem to come from every direction.
Market spillover
The prospect of more media buys sent several stocks soaring at the weekend. Netflix and Discovery Communications each jumped more than 3 per cent. Time Warner rose nearly 8 per cent, and is now up 38 per cent since the start of the year.
In Time Warner’s last big deal, when AOL bought it 15 years ago, it was paid entirely in AOL stock, which then crashed. This time, Time Warner is getting half of the deal in Time Warner stock, and half in cash.