AT&T buy­ing Time Warner for $85.4 bil­lion

Daily Local News (West Chester, PA) - - NEWS - By Tali Arbel and Bernard Con­don AP Busi­ness Writ­ers

AT&T is buy­ing Time Warner, the owner of the Warner Bros. movie stu­dio as well as HBO and CNN, for $85.4 bil­lion in a deal that could shake up the me­dia land­scape.

The ac­qui­si­tion 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’s the lat­est big me­dia ac­qui­si­tion by a ma­jor ca­ble or phone com­pany — deals like Com­cast’s 2011 pur­chase of NBC Uni­ver­sal, all aimed at shoring up busi­nesses up­ended by the in­ter­net.

Reg­u­la­tors would have to sign off on the ac­qui­si­tion, no cer­tain thing. The prospect of another me­dia gi­ant on the hori­zon has al­ready drawn fire on the cam­paign trail. Speak­ing in Get­tys­burg, Pennsylvania, GOP pres­i­den­tial nom­i­nee Don­ald Trump vowed to kill it if elected be­cause it con­cen­trates too much “power in the hands of too few.”

Sen. Al Franken, a Min­nesota Demo­crat, said the deal “raises some im­me­di­ate flags about con­sol­i­da­tion in the me­dia mar­ket” and said he would press for more in­for­ma­tion on how the deal will af­fect con­sumers.


Com­pa­nies that pro­vide phone and in­ter­net con­nec­tions are in­vest­ing in me­dia to find new rev­enue sources and en­sure they don’t get rel­e­gated to be­ing just “dumb pipes.” In ad­di­tion to Com­castNBC Uni­ver­sal, Ver­i­zon bought AOL last year and has now pro­posed a deal for Ya­hoo to build a dig­i­tal-ad busi­ness.

Af­ter its at­tempt to buy wire­less com­peti­tor T-Mo­bile was scrapped in 2011 fol­low­ing op­po­si­tion from reg­u­la­tors, the com­pany dou­bled down on tele­vi­sion by pur­chas­ing satel­lite-TV com­pany DirecTV for $48.5 bil­lion. AT&T is ex­pected to of­fer a stream­ing TV pack­age, DirecTV Now, by the end of the year, aimed at peo­ple who have dropped their ca­ble sub­scrip­tions or never had one.

The ven­er­a­ble phone com­pany has to con­tend with slow­ing growth in wire­less ser­vices, given that most Amer­i­cans al­ready have smart­phones. And it faces new com­peti­tors for that busi­ness from ca­ble com­pa­nies. Com­cast plans to launch a cell­phone ser­vice for its cus­tomers next year.

AT&T CEO Ran­dall Stephen­son, who will run the com­bined com­pany, said the deal will al­low AT&T to of­fer unique ser­vices, par­tic­u­larly on mo­bile, though he didn’t pro­vide de­tails. Jeff Bewkes, the Time Warner CEO who will stay with the com­pany for an un­de­fined tran­si­tion pe­riod, added that more money will help fund pro­duc­tion of ad­di­tional pro­gram­ming and films.

Both men stressed that it will be eas­ier to “in­no­vate” when the com­pa­nies are joined and don’t have to ne­go­ti­ate us­age rights at arm’s length. (AT&T, of course, will still have to strike such deals with other en­ter­tain­ment con­glom­er­ates.) The com­bined com­pany is also likely to lean more heav­ily on ad­ver­tise­ments tar­geted at in­di­vid­u­als based on their in­ter­ests and per­sonal de­tails.

Buy­ing Time Warner may be “a good de­fen­sive move” against Com­cast as the ca­ble gi­ant con­tin­ues stretch­ing into new busi­nesses, New Street Re­search an­a­lyst Jonathan Chap­lin said in a Fri­day note. Com­cast also bought movie stu­dio DreamWorks An­i­ma­tion in Au­gust.


Even if the AT&T deal over­comes op­po­si­tion in Wash­ing­ton, it’s pos­si­ble that reg­u­la­tors might sad­dle the com­bined com­pany with so many con­di­tions that the deal no longer makes sense.

“It’s not hard to imag­ine what you can do on pa­per. They would keep HBO ex­clu­sive for only DirecTV sub­scribers, or only make TNT or TBS avail­able over AT&T Wire­less,” said an­a­lyst Craig Mof­fett of re­search firm Mof­fet­tNathanson, re­fer­ring to Time Warner net­works. “But as a prac­ti­cal mat­ter, those kinds of strate­gies are ex­pressly pro­hib­ited by the FCC and an­titrust law.”

Then there is the $85 bil­lion that AT&T is hand­ing over to Time Warner, al­most 40 per­cent more than in­vestors thought the com­pany was worth a week ago.

“Count me as a skep­tic that there is real value to be cre­ated,” Mof­fett said.

Amy Yong, an an­a­lyst at Mac­quarie Cap­i­tal, re­called many cel­e­brated me­dia deals of the past have turned into duds — in par­tic­u­lar, Time Warner’s dis­as­trous ac­qui­si­tion by AOL in 2001. “If you look at his­tory, it’s still an un­proven” that big deals make sense, she said. AT&T, she noted, was pay­ing “a huge price.”

Still, Yong said that AT&T and other phone com­pa­nies feel they have to act be­cause the threats to their busi­ness seem to be coming from ev­ery di­rec­tion. “At the end of the day, these com­pa­nies are try­ing to com­pete with Google and Face­book and Ama­zon, not just tra­di­tional com­peti­tors,” she said. “You see Google piv­ot­ing into wire­less.”

John Bergmayer of the pub­lic-in­ter­est group Pub­lic Knowl­edge, which of­ten crit­i­cizes me­dia con­sol­i­da­tion, warned of harm to con­sumers from the AT&T deal. He said, for ex­am­ple, AT&T might let wire­less cus­tomers watch TV and movies from Time Warner with­out count­ing it against their data caps, which would make video from other providers less at­trac­tive.


Shares of AT&T, as is typ­i­cal of ac­quir­ers in large deals, fell on re­ports of a deal in the works on Fri­day, end­ing the day down 3 per­cent. But the prospect of more me­dia ac­qui­si­tions sent sev­eral stocks soar­ing Fri­day. Net­flix and Dis­cov­ery Com­mu­ni­ca­tions each jumped more than 3 per­cent.

Time Warner rose nearly 8 per­cent on Fri­day, and is now up 38 per­cent since the start of the year.

The com­pany has moved ag­gres­sively to counter the threat that slid­ing ca­ble sub­scrip­tions poses to its busi­ness. Among other things, it launched a stream­ing ver­sion of HBO for cord­cut­ters and, along­side an in­vest­ment in in­ter­net TV provider Hulu, added its net­works to Hulu’s live-TV ser­vice that’s ex­pected next year.

The deal would make Time Warner the tar­get of the two largest me­dia-com­pany ac­qui­si­tions on record, ac­cord­ing to Dealogic. The high­est was AOL’s $94 bil­lion ac­qui­si­tion of Time Warner at the end of the dot-com boom.

In that last deal, AOL paid en­tirely in its own stock, which then pro­ceeded to crater. This time, Time Warner is play­ing it safer. It’s get­ting half of the deal in AT&T stock and half in cash.


In this file photo, pedes­tri­ans walk by an en­trance to the Time Warner Cen­ter in New York. On Satur­day, Oct. 22, 2016, sev­eral re­ports cit­ing un­named sources said AT&T is in ad­vanced talks to buy Time Warner, owner of the Warner Bros. movie stu­dio as well as HBO and CNN. The gi­ant phone com­pany is said to be of­fer­ing $80 bil­lion or more, a mas­sive deal that would shake up the me­dia land­scape.

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