AT&T Reaches Deal to Buy Time Warner for $85.4 Billion

AT&T Inc. has reached an agreement to buy Time Warner Inc. for $85.4 billion in a deal that would transform the phone company into a media giant.





The wireless carrier agreed to pay $107.50 a share, evenly split between cash and stock. The companies said they expect the deal to close by the end of 2017.

AT&T Chief Executive Randall Stephenson would head the new company. The companies said Time Warner Chief Executive Jeff Bewkes would stay for an interim period following the close of the deal to help with the transition.

The combined business would pair the carrier’s millions of wireless and pay-television subscribers with Time Warner’s deep media lineup, which includes networks such as CNN, TNT, the prized HBO channel and Warner Bros. film and TV studio. It furthers AT&T’s bet that television and video can drive growth into a stalled wireless market.

“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,” Mr. Stephenson, 56 years old, said in a release.

The companies said they aim to be the first U.S. wireless company to compete nationwide with cable companies by providing an online-video bundle akin to a traditional pay-television package. “It will disrupt the traditional entertainment model and push the boundaries on mobile content availability for the benefit of customers,” the companies said.

For Time Warner, the deal represents a victory for Mr. Bewkes, 64, who took some heat from investors for rebuffing a takeover bid two years ago from 21st Century Fox at $85 a share. (21st Century Fox and Wall Street Journal-owner News Corp share common ownership.)

A major question is whether regulators will be willing to bless another major consolidation in the media industry especially after misgivings from a prior deal between Comcast Corp. and General Electric Co.’s NBCUniversal. At the very least, former regulatory officials say there could be significant conditions placed on the combination.

On a conference call Saturday night, AT&T’s Mr. Stephenson played down any regulatory roadblocks, arguing that AT&T isn’t eliminating a competitor, but rather is buying a supplier, a type of combination that isn’t blocked by regulators. “Any concerns by the regulators we believe would be adequately addressed by conditions,” he said. The companies are reviewing whether any of Time Warner’s licenses will be transferred under the deal, requiring a review by the Federal Communications Commission.

Competitors are likely to sound alarms about the scale of the combined company to possibly extract concessions during the review. Walt Disney Co. Chief Communications Officer Zenia Mucha said Saturday that “a transaction of this magnitude obviously warrants very close regulatory scrutiny.”

Mr. Stephenson added that Time Warner had created an “amazing franchise” by distributing its content to many distributors, and “we don’t imagine that changing.”

The talks began in August, when Mr. Stephenson paid a visit to Mr. Bewkes at Time Warner’s New York offices. “He came to talk to me about his view of distribution going forward, and my view of content,” Mr. Bewkes said in an interview after the deal was announced late Saturday. “He said, ‘conceptually it might make sense for us to combine. Should we investigate?’ ”

The first hurdle was getting Time Warner interested in selling. The men continued discussing the possibilities with each other and talked to their boards, eventually concluding that a merger made sense, Mr. Bewkes said.

Time Warner has experience in trying to marry internet and media assets before with its blockbuster cross-industry combination, the 2000 merger with AOL, which became a case study of what can go wrong in an ambitious deal.

Mr. Bewkes said a big difference from the AOL days is that distribution has become even more central to giving consumers what they demand from media—more flexibility in the packages they can buy, and the platforms they can accesses content from. “There’s more video going on mobile,” Mr. Bewkes said.

Mr. Bewkes said on the conference call Saturday night that he plans to stay on for “a reasonable period of time” after the deal closes, adding that he expected “basically all” of Time Warner’s business and creative executives to remain at the company for many years.

For AT&T, the deal will help the carrier potentially find new areas of growth as its core wireless business has become saturated and its market share leaves little room for acquisitions.

On Saturday the carrier released its quarterly financial results, providing a view of the pressures its traditional wireless business faces. The carrier lost 268,000 mainstream wireless phone customers and its video business lost a net 3,000 customers in the quarter, as additions in the DirecTV business failed to surpass the losses in its older U-Verse service. The company has lost almost 200,000 video customers since buying satellite television provider DirecTV last year.

The transaction would be far and away the biggest media deal of recent years, potentially breathing new life into media deal-making. Time Warner had a market capitalization of $68 billion before the Journal reported on the advanced talks Friday, while AT&T’s was $233 billion. For AT&T, the deal would eclipse the nearly $50 billion DirecTV deal and may be its biggest acquisition since paying $85 billion for BellSouth in 2006.

If completed, Dallas-based AT&T would rely on its entertainment business for more than 40% of its revenue, based on second-quarter financial results, strongly diversifying the company away from a U.S. wireless business that has become increasing competitive.

With its newfound scale from the DirecTV acquisition, AT&T has spent the past year aggressively negotiating deals with content owners and plans to launch an over-the-top video service by year’s end, which would allow users to stream programming over the Web without the need for a satellite dish. Mr. Stephenson described those negotiations as “really hard and really slow.”

“Jeff and I have a vision that if you put these things together, you can iterate and develop content differently for these new platforms,” Mr. Stephenson said on the call.

Time Warner has agreed to pay a $1.7 billion breakup fee if another company outbids AT&T’s offer, a person familiar with the plans said. AT&T, meanwhile, would pay $500 million if the deal gets blocked, this person said.

AT&T will tap $40 billion in bridge loans, the person said, with $25 billion coming from J.P. Morgan Chase & Co. and $15 billion from Bank of America Corp. The carrier said it is committed to maintaining its investment-grade credit ratings and forecast that the deal will lead to about $1 billion in cost savings within the three years.



Resource : http://www.wsj.com/articles/at-t-reaches-deal-to-buy-time-warner-for-more-than-80-billion-1477157084

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