By Thomas Gryta, Keach Hagey, Dana Cimilluca and Amol Sharma
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.
Dana Mattioli, Shalini Ramachandran and George Stahl contributed
to this article.
Write to Thomas Gryta at thomas.gryta@wsj.com, Keach Hagey at
keach.hagey@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and
Amol Sharma at amol.sharma@wsj.com
(END) Dow Jones Newswires
October 22, 2016 23:21 ET (03:21 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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