By Thomas Gryta, Keach Hagey and Dana Cimilluca
AT&T Inc. has reached an agreement to buy Time Warner Inc.
for $86 billion, according to a person familiar with the plans, in
a deal that would transform the phone company into a media
giant.
The wireless carrier agreed to pay $107.50 a share, the person
said. The deal is half cash and half stock, according to people
familiar with the transaction.
AT&T Chief Executive Randall Stephenson will head the new
company and Time Warner Chief Executive Jeff Bewkes will leave
after an interim period following the deal, the person said.
The deal is expected to be announced Saturday evening, the
people said.
The acquisition pushes the carrier deeper into the traditional
entertainment business at a time of stalled wireless growth. For
Time Warner, the deal represents a victory for Mr. Bewkes, 64 years
old, 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.)
It pairs AT&T's millions of wireless and pay-television
subscribers with Time Warner's deep media lineup including networks
such as CNN, TNT, the prized HBO channel and Warner Bros. film and
TV studio.
For Mr. Stephenson, 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.
For Time Warner, the tie-up comes amid pressure for media companies
to bulk up or join with larger entities in the face of
consolidation among pay-TV distributors and viewers increasingly
leaving their expensive cable packages for cheaper online streaming
options.
A merger of the companies would be the most ambitious marriage
of content and distribution in the media and telecom industries
since Comcast Corp.'s purchase of NBCUniversal and would create a
behemoth to rival that cable giant. A rigorous regulatory review is
expected and the acquisition of Time Warner likely wouldn't close
until late 2017, people close to the process said.
Regulators have indicated misgivings about the prior
Comcast-NBCU deal -- in particular, whether obligations placed on
Comcast were tough enough and enforceable -- so it is unclear if
they will be willing to bless another such merger. At the very
least, former regulatory officials say there could be significant
conditions placed on the combination. Republican presidential
nominee Donald Trump said his administration wouldn't approve a
proposed merger of AT&T and Time Warner because he opposes
further consolidation in the media industry.
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 Wall Street Journal reported on the advanced talks
Friday, while AT&T's was $233 billion
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 Wall Street Journal reported on the advanced talks
Friday, while AT&T's was $233 billion.
On Friday, Time Warner shares closed at $89.48, up 8%, while
AT&T fell 3% to $37.49.
AT&T has been shifting its sights to media and video in
recent years, diving deeper into television after its nearly $50
billion deal to acquire satellite television provider DirecTV last
year. That made AT&T, which traces its roots to the old 'Ma
Bell, the country's biggest pay television provider as well as its
second-largest wireless operator.
Time Warner "is the last scaled content play that's acquirable,"
said Michael Nathanson, an analyst at MoffettNathanson, noting that
the rest of the major media companies are either so valuable they
would be difficult to acquire, such as Walt Disney Co., or family
controlled, such as 21st Century Fox, CBS and Viacom. "HBO, Turner
and Warner Bros. are really good assets for a future of nonlinear
consumption."
The sale represents a strategic departure for Mr. Bewkes, who
spent his nearly nine years as CEO slimming down the onetime media
behemoth, unwinding the AOL merger and spinning out Time Warner
Cable and Time Inc. The three businesses that remained -- HBO,
Turner Broadcasting and Warner Bros. -- are focused solely on video
content. In lieu of acquisitions, Mr. Bewkes focused on containing
costs and buying back stock.
A cerebral Stanford M.B.A. known for his financial acumen, Mr.
Bewkes's strategy was influenced in part by scars from the
disastrous AOL-Time Warner merger, which left shareholders in the
combined company -- including employees such as Mr. Bewkes -- in a
lurch after AOL's business collapsed.
Much has changed in the media landscape since the AOL-Time
Warner marriage unraveled, Mr. Bewkes spun off Time Warner Cable
and even since he rebuffed Fox's takeover offer.
For Mr. Bewkes, selling now could turn out to be a shrewd bet,
given the uncertainty of the media business. Cord-cutting has so
far only been a relatively minor drag on industry results. It is
the threat of future disruption that is the most potent overhang on
media stocks, and it is unclear when the pace of change will
accelerate.
Within Time Warner, CNN is enjoying a huge viewership boost,
with a doubling of its ratings year-over-year because of interest
in the presidential election, but retaining that audience when the
political circus subsides will be a huge challenge.
Meanwhile, the company has long-term investments for the rights
to carry MLB and NBA games via TBS and TNT that have long looked
like sure bets, as sports have been more immune to ratings
pressure. But cracks have appeared in the NFL's viewership this
season, raising questions about whether sports TV may face a
reckoning. HBO continues to be a creative and financial juggernaut
but competition with Netflix, Amazon, Showtime, FX and others to
work with top talent is only intensifying by the year.
If completed, Dallas-based AT&T would rely on television and
media 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.
Mr. Stephenson has been reshaping AT&T's strategy in recent
years, particularly since consolidation in the wireless sector
hasn't left room for major deals. AT&T's attempt to buy
T-Mobile was killed by regulators in 2011.
With its newfound scale from the DirecTV acquisition, AT&T
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. Owning Time Warner would
give AT&T assets that would help along those streaming media
ambitions.
For AT&T, the deal would eclipse DirecTV and may be its
biggest acquisition since paying $85 billion for BellSouth in 2006.
With $117.3 billion in long-term debt at the end of June, buying
Time Warner could give AT&T a huge balance sheet with debt
hitting almost $200 billion, according to analysts at New Street
Research. The issuance of new stock, a common move in AT&T's
deal making, increases its total dividend costs, above the almost
$12 billion in current annual payouts.
Write to Thomas Gryta at thomas.gryta@wsj.com, Keach Hagey at
keach.hagey@wsj.com and Dana Cimilluca at
dana.cimilluca@wsj.com
(END) Dow Jones Newswires
October 22, 2016 17:05 ET (21:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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