By Keach Hagey, Amol Sharma, Dana Cimilluca and Thomas Gryta
AT&T Inc. is nearing an agreement to buy Time Warner Inc., a
deal that would set a milestone in the converging media and
telecommunications sectors and unleash a far-reaching reordering of
the industry as rivals are spurred to attempt their own deals.
A deal, which could happen as early as this weekend, would unite
AT&T's wireless, broadband and satellite TV brands with Time
Warner's entertainment empire, which includes cable networks such
as TNT, TBS, CNN, the prized HBO channel, and the Warner Bros. film
and TV studio.
Talks toward a cash-and-stock purchase have come together
quickly and could stall or fall through, said people familiar with
the matter. The companies are negotiating a deal that would value
Time Warner at between $105 and $110 a share, or more than $80
billion, people familiar with the discussions said.
It is possible other bidders could emerge, including traditional
media conglomerates or technology companies. Apple Inc. approached
Time Warner about a merger a few months ago and while those talks
are no longer active, Apple continues to monitor the situation, a
person familiar with the situation said. If a Time Warner sale
occurs that could encourage other telecom and media companies to
pursue their own combinations.
Time Warner shares rose 8% to $89.48 after The Wall Street
Journal reported a deal could be imminent, while AT&T fell 3%
to $37.49, both at 4 p.m. on Friday.
An AT&T-Time Warner merger would be the most ambitious
marriage of content and distribution since Comcast Corp.'s 2011
purchase of NBCUniversal and would create a behemoth that rivals
that cable giant. Its value potentially would stand as the biggest
media deal in recent years: Time Warner has a market capitalization
of $72 billion and AT&T's is $226 billion.
A deal of its size would get intense regulatory scrutiny. U.S.
regulatory officials have showed misgivings about conditions on the
Comcast-NBCU deal -- in particular, whether merger obligations on
Comcast were enforceable -- so it is unclear if they will be
willing to bless another such merger.
AT&T Chief Executive Randall Stephenson and Time Warner CEO
Jeff Bewkes struck up talks in recent weeks, with support from
internal teams, the people familiar with the matter said. Veteran
entertainment executive Peter Chernin, who has an online video
joint venture with AT&T, has informally advised AT&T on its
bid, one of the people said.
A sale of Time Warner to AT&T would have echoes of the
blockbuster 2000 AOL-Time Warner merger -- then the largest deal of
all time. That was a different bet on a converged media future, one
in which AOL's internet service would have complemented and boosted
Time Warner's content. But the merger ultimately proved a failure,
hurt by the unraveling of the dot-com boom, a clash of cultures and
poor assumptions about the way each business could help the
other.
Dallas-based AT&T has been reshaping its strategy in recent
years, as the U.S. cellular business became saturated and years of
consolidation in that sector left no room for major deals.
AT&T's attempt to buy T-Mobile was killed by regulators in
2011.
AT&T has turned to video, with the nearly $50 billion
acquisition of DirecTV last year, instantly making it the biggest
player in pay television. That pay TV business faces headwinds as
more consumers cut the cord or look to trim their monthly bills,
with streaming services providing new competition in the
marketplace.
Owning Time Warner's content -- including HBO's "Game of
Thrones" and professional sports games -- could bring AT&T new
growth and assets that would help its streaming media
ambitions.
With AT&T's $117.3 billion in long-term debt at the end of
June, a Time Warner deal could give the telecom company a balance
sheet with debt hitting almost $200 billion, according to analysts
at New Street Research.
Bloomberg reported on Thursday that senior executives of
AT&T and Time Warner had met in recent weeks to hold
preliminary discussions on various business strategies, including a
possible merger.
Since the AOL-Time Warner deal, much has changed, and the mashup
of mobile, broadband and TV that has long been anticipated has been
taking shape quickly. Consumers are streaming shows on phones and
tablets, signing up for TV services without a connection from a
traditional cable or satellite provider, and doing much of their
media consumption on social media platforms such as Facebook.
Time Warner's Mr. Bewkes has positioned his company as a pure
content player in recent years, spinning off AOL as well as the
Time Warner Cable pay-TV unit and the Time Inc. magazine-publishing
division .
In 2014, Mr. Bewkes fought off an unsolicited takeover bid from
21st Century Fox, indicating Time Warner wanted a far higher price
than the initial roughly $80 billion offer that was on the table.
(21st Century Fox and Wall Street Journal-owner News Corp share
common ownership.)
Mr. Bewkes since has sought to persuade Wall Street he can run
Time Warner effectively as a stand-alone outfit in a media world
where a few distribution giants are achieving enormous scale.
To answer the concern that Netflix and other streaming services
are appealing to cord-cutters and people who never sign up for
cable in the first place, he launched the HBO Now streaming
service, which had nearly a million subscribers as of March. Time
Warner also carried out cost cuts and layoffs and continued big
content investments.
Among media players, Time Warner is attractive because it
doesn't have a big shareholder with effective control and because
it is relatively well-positioned for a media world where cable TV
distributors want to carry skinnier bundles of channels.
Time Warner has only a few major networks -- some of which, like
TNT and TBS, carry high-value sports content -- compared with
companies that have a host of channels with small audiences.
Acquiring Time Warner also would get AT&T further into the
streaming business with Hulu. Time Warner bought a 10% stake in
Hulu in August, joining Walt Disney Co., 21st Century Fox and
NBCUniversal as an owner in the $5.8 billion video service.
AT&T also is launching a DirecTV online service aimed at
selling a robust package of TV channels.
Shalini Ramachandran, Dennis K. Berman and Dana Mattioli
contributed to this article.
Write to Keach Hagey at keach.hagey@wsj.com, Amol Sharma at
amol.sharma@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and
Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
October 21, 2016 21:20 ET (01:20 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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