31 October 2016

AT&T’s megadeal to buy Time Warner

AT&T, the second-largest wireless carrier in the US, caught the financial market by surprise last week when it agreed to a whopping USD 108,700 million deal to acquire media behemoth Time Warner, overshadowing the buyer’s previous purchase of cable television provider DirecTV (worth USD 67,100 million) last year.

The telecommunications conglomerate will pay USD 107.50 per share, which represents a 20.1 per cent premium over Time Warner’s close prior to the announcement, in a mix of stock and cash. To fund the lavish pay-out, AT&T will utilise its cash reserves and obtain a new debt facility, adding to its already heavy debt load and as a result making the group one of the most indebted companies in the world, according to the Wall Street Journal.

Time Warner’s flagship divisions HBO and Warner Bros have distributed some of the best known films and television shows of recent years, such as Game of Thrones and the Harry Potter series. With viewers increasingly switching away from traditional television, the group recently launched HBO Now, a movie streaming platform that offers HBO’s content, which could rival other big names, including Netflix and Amazon, in the future.

As disclosed in a joint press release, a merger between both companies would mean combining Time Warner’s content and AT&T’s vast pay television subscriber base. With a network that covers over 315 million people in the US, they aim to offer an online video bundle that will “disrupt the traditional entertainment model and push the boundaries on mobile content availability for the benefit of customers.” Additionally, Time Warner’s content will provide AT&T with new advertising options, which could in turn finance the production of new content by Time Warner.

While the boards at both companies have unanimously given the green light, the deal still requires approvals from shareholders and US regulators before its scheduled closing next year. This may prove to be a major challenge as the current political climate in the US has become increasingly hostile to large mergers that typically result in combined entities having a high concentration of market power. Stating that such mergers “destroy democracy”, the US Republican presidential candidate Donald Trump vowed to block the Time Warner deal if he becomes the head of state. His presidential rival Hillary Clinton, too, urged a thorough analysis and close scrutiny of the transaction from the government.

AT&T’s agreement came after Twenty-First Century Fox’s failed attempt to buy Time Warner two years ago. The Rupert Murdoch-owned media group reportedly offered USD 80,000 million for the acquisition, which was later turned down by Time Warner.

Time Warner’s shares fell 3.1 per cent to close at CNY 86.74 on 24th October following the announcement, while AT&T’s equity plunged 1.7 per cent from the previous trading day.

© Zephyr