AT&T confirms $85.4-bn acquisition of Time Warner

24 Oct 2016

US telecom giant AT&T Inc, on Saturday struck a mega deal to buy multinational media and entertainment conglomerate Time Warner Inc for $85.4 billion in cash and stock, in what could be the year's biggest, deal but highly-scrutinized acquisition.

The Wall Street Journal reported on Friday that Apple Inc had approached Time Warner a few months ago about a possible merger.

Including Time Warner's net debt, the AT&T deal is worth $108.7 billion.

Under the terms of the deal, Time Warner shareholders will receive $107.50 per share, comprising of $53.75 per share in cash and $53.75 per share in AT&T stock, a 35-per cent premium to Time Warner's stock that was trading before reports of the merger talks emerged.

The stock portion will be subject to a collar such that Time Warner shareholders will receive 1.437 AT&T shares if  its average stock price is below $37.411 at closing and 1.3 AT&T shares if  the average stock price is above $41.349 at closing.

Post closing, Time Warner shareholders will own between 14.4 per cent and 15.7 per cent of AT&T shares.

AT&T plans to fund the cash portion of the deal with cash on hand and new debt and and has secured a bridge loan of $40 billion.

AT&T expects to generate $1 billion in annual synergies within 3 years of closing primarily through corporate and procurement expenses.

AT&T will pay a $500-million breakup fee to Time Warner if the proposed transaction is blocked by antitrust regulators.

The deal comes less than three months after AT&T completed its $49 billion acquisition of satellite TV provider DirecTV. (See: AT&T completes DirecTV acquisition)

New York-based  global media and entertainment giant Time Warner has a great portfolio of content creation and aggregation, and iconic brands across video programming and TV / film production. 

Time Warner's US and international cable networks include TNT, TBS, CNN, HBO, and Cartoon Network / Adult Swim, and has sports rights that include to National Basketball Association, NCAA Men's Championship Basketball Tournament, and Major League Baseball.It also owns the Warner Bros film studio, producer of the ''Batman'' and ''Harry Potter'' film franchises. The company also owns a 10 per cent stake in video streaming site Hulu.

Its film franchises include Harry Potter, DC Entertainment, and LEGO, while its TV series include The Big Bang Theory, The Voice, and Gotham. The company also owns a 10-per cent stake in video streaming site Hulu.

Time Warner has been a takeover target since the past three years. In 2014, 21st Century Fox, controlled by media mogul Rupert Murdoch, withdrew its $80-billion takeover offer Time Warner rejected the proposal saying that it was worth more (See: Time Warner spurns Murdoch's $80-bn offer).

AT&T had in 2014 entered a joint venture, Otter Media, with the Chernin Group to invest in media businesses, and has rolled out video streaming services

In 2015, US cable and internet provider, Comcast Corp withdrew its $45.2-billion proposed acquisition of Time Warner's cable TV service unit, after the mega deal faced opposition from consumers and a possible veto from regulators (Comcast scraps merger agreement with Time Warner Cable).

The unit was later acquired by Charter Communications for $56 billion (Charter to acquire Time Warner Cable for $56 bn).

Owning more content gives cable and telecom companies bargaining leverage, especially as the new mobile technology including next-generation 5G networks could make a content tie-up attractive for wireless providers.

The AT&T-Time Warner deal will combine Time Warner's vast library of content with AT&T's pay TV subscriber base and TV, which is the  world's largest, and mobile and broadband distribution.

Time Warner chairman and CEO Jeff Bewkes said, ''Combining with AT&T dramatically accelerates our ability to deliver our great brands and premium content to consumers on a multiplatform basis and to capitalize on the tremendous opportunities created by the growing demand for video content.''

Dallas-based AT&T is the second largest provider of mobile telephone services and the largest provider of fixed telephone services in the US.

It also provides broadband subscription television services through its newly acquired DirecTV. It has TV customers in the US and 11 Latin American countries.

AT&T is the largest telecommunications company in the world by revenue, and the world's 17th-largest mobile telecom operator.

The deal has already come under criticism from both the Republicans and the Democrats and various consumer groups since AT&T already has over 100 million subscribers across its wireless, broadband and DirecTV offerings.

Lawmakers are concerned about the limitation of consumer choice since the deal will create a company that creates its own content and provides the means to deliver both its own offerings and of its competitors.