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U.S. telco will have a hard time proving to the FCC and the Justice Department that the deal will truly benefit consumers.
AT&T on Saturday agreed an $85.4 billion (€78.4 billion) acquisition of Time Warner, a deal that promises to turn the U.S. telco into a content powerhouse, provided it passes muster with the regulators.
Time Warner owns premium content network HBO, film and TV studio Warner Bros. Entertainment, and media conglomerate Turner, which owns the rights to broadcast NBA basketball.
"Premium content always wins. It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen. We’ll have the world’s best premium content with the networks to deliver it to every screen," said AT&T CEO Randall Stephenson.
The acquisition builds on AT&T’s recent purchase of DirecTV, a deal that made AT&T the U.S.’s biggest TV provider by customers, and enabled it to ramp up its TV-everywhere strategy. It also sends a strong message not only to AT&T’s main rival Verizon – which is busy building media assets by launching mobile TV services and acquiring the likes of AOL and Yahoo – but also to OTT video providers like Netflix, Amazon, and YouTube, all of which are out to grow their cross-platform audience share.
"Time Warner’s leadership, creative talent and content are second to none," Stephenson continued. "Combine that with 100 million plus customers who subscribe to our TV, mobile and broadband services – and you have something really special."
Special is one way of putting it; potentially anticompetitive would be another.
"Vertical integration between programming and distribution in particular raises a number of issues," said John Bergmayer, senior counsel at consumer advocacy group Public Knowledge.
Acquiring Time Warner would put AT&T in a position to discriminate against rival content owners trying to distribute programming over AT&T’s networks, he warned in a statement published shortly before the deal was officially confirmed. The U.S. telco could also potentially make it more expensive for rival distributors to carry Time Warner content.
Competition authorities should "determine whether the substantial competitive dangers are either outweighed by demonstrable benefits or whether the dangers can be prevented with thoroughly enforceable conditions," Bergmayer said. "If not, it [the deal] should be blocked."
The last time a big network operator merged with a major content player was in 2009, when cable giant Comcast agreed to acquire media owner NBCUniversal. That deal was subject to intense scrutiny by the Federal Communications Commission (FCC) and the Department of Justice (DoJ). While the transaction ultimately received conditional approval, the review process took 13 months to complete.
AT&T has had mixed fortunes lately when it comes to convincing regulators to permit large takeovers.
In 2011, the company abandoned its $39 billion proposal to acquire rival operator T-Mobile US, amid stiff opposition from the DoJ. The aforementioned $48.5 billion acquisition of TV provider DirecTV – struck in May 2014 – was subject to a review that lasted more than a year, but eventually received the green light.
The deal announced on Saturday will see AT&T pay $107.50 per share for Time Warner, comprised of $53.75 per share in cash and $53.75 per share in AT&T stock. That implies an equity value of $85.4 billion. When Time Warner’s debt is included, the transaction value rises to $108.7 billion. After the deal closes, Time Warner shareholders will own 14.4%-15.7% of AT&T shares.
AT&T said the cash portion of the acquisition will be funded through a combination of cash on hand and new debt.
AT&T said it expects the deal to generate $1 billion in annual synergies within three years of the deal closing.
Furthermore, AT&T listed three diversification benefits that Time Warner brings with it, namely: a diversified revenue mix – Time Warner will represent about 15% of the combined company’s revenues – as well as lower capital intensity and lighter regulation compared to its core telco business.
For Time Warner CEO Jeff Bewkes, "combining with AT&T dramatically accelerates our ability to deliver our great brands and premium content to consumers on a multiplatform basis and to capitalise on the tremendous opportunities created by the growing demand for video content," he said.
"My senior management team and I are looking forward to working closely with Randall and our new colleagues as we begin to capture the tremendous opportunities this creates to make our content even more powerful, engaging and valuable for global audiences," he added.
AT&T and Time Warner expect to complete the deal before the end of 2017.
