Las Vegas Review-Journal (Sunday)
AT&T buying Time Warner in megadeal
If OK’d, $85B pact would form newest phone/cable giant
NEW YORK — 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, Republican 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.
MEDIA MERGER MANIA
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 Comcast-NBC 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 also is 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.
POTENTIAL DOWNSIDES
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 Moffett-Nathanson, 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.
MARKET MOVES
Shares of AT&T, as is typical of acquirers in large deals, fell on reports of a deal in the works Friday, ending the day down 3 percent. But the prospect of more media acquisitions sent several stocks soaring. Netflix and Discovery Communications each jumped more than 3 percent.
Time Warner rose nearly 8 percent Friday, and is up 38 percent since the start of the 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 dotcom 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.