AT&T to buy Time Warner in $85.4B cash, stock deal

Lisa Wolfson and Scott Moritz

AT&T Inc. and Time Warner Inc. today announced they have entered into a definitive agreement under which AT&T will acquire Time Warner in a stock-and-cash transaction valued at $107.50 per share. The agreement has been approved unanimously by the boards of directors of both companies.

The deal combines Time Warner’s vast library of content and ability to create new premium content that connects with audiences around the world, with AT&T’s extensive customer relationships, world’s largest pay TV subscriber base and leading scale in TV, mobile and broadband distribution.

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“This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers,” said Randall Stephenson, AT&T chairman and CEO. “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. A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that. We intend to give customers unmatched choice, quality, value and experiences that will define the future of media and communications.

“With great content, you can build truly differentiated video services, whether it’s traditional TV, OTT or mobile. Our TV, mobile and broadband distribution and direct customer relationships provide unique insights from which we can offer addressable advertising and better tailor content,” Stephenson said. “It’s an integrated approach and we believe it’s the model that wins over time.

AT&T Inc. agreed to buy Time Warner Inc. for $85.4 billion, forming a telecommunications and media empire that will own many of the movies and TV shows it pumps through to subscribers of its wireless, internet and pay-TV services.

The cash-and-stock deal values Time Warner at about $107.50 a share, the companies said Saturday in a statement, 20 percent more than Friday’s closing price. Time Warner shareholders are to receive $53.75 per share in cash and $53.75 a share in AT&T stock.

“This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works,” AT&T Chairman and Chief Executive Officer Randall Stephenson said in the statement.

The deal caps Stephenson’s vision to expand AT&T into media and entertainment as its wireless business matures. Gaining premium cable channel HBO, CNN and the Warner Bros. studio means AT&T becomes a content owner rather than just a distributor of video.

The combination will “disrupt the traditional entertainment model and push the boundaries on mobile content availability,” according to the statement.

Executive Meetings

Senior executives of the companies had met in recent weeks to discuss business strategies and an agreement was near as of Friday, Bloomberg reported, citing people familiar with the talks.The acquisition comes a little more than a year after Dallas-based AT&T became the largest U.S. pay-TV distributor when it completed its $48.5 billion purchase of satellite-TV provider DirecTV.

The transaction is valued at $108.7 billion including Time Warner’s net debt. Once the deal closes, Time Warner shareholders will own from 14.4 percent to 15.7 percent of AT&T shares. AT&T expects the deal to be accretive in the first year and sees $1 billion in annual cost synergies within three years of closing.

AT&T has commitments for a bridge loan of $40 billion to finance part of the cash portion of the deal, according to the statement. JPMorgan Chase & Co. is contributing $25 billion of the financing, with Bank of America Corp. providing the rest, according to a source familiar with the arrangement.

Time Warner will pay a breakup fee of $1.72 billion if it walks away from the deal, while AT&T is liable for $500 million, according to a representative for AT&T.

Awkward Marriage

“It was time to do a deal and Time Warner was available,” Jonathan Chaplin, an analyst at New Street Research in New York, said in an interview before the transaction was announced. He has a neutral rating on AT&T’s shares. “Time Warner offers a premier set of media assets; the only one that is bigger is Disney.”

Chaplin called the combination “an awkward marriage.” AT&T, rooted in a century-old telecommunications system, is attempting to pair a more stodgy culture with one that has a distinctly more dynamic New York media and Hollywood mindset. One of the largest corporate employers in the country with some 281,000 workers at the end of last year, AT&T posted 2015 revenue of $146.8 billion. Time Warner, with almost 25,000 employees, reported revenue of $28.1 billion.

Time Warner’s huge entertainment offering gives AT&T new revenue streams at a time when subscribers to traditional pay-TV are cutting the cord and switching to cheaper “skinny bundles” like Dish Network Corp.’s Sling TV or to online services such as Netflix Inc. and Inc. To keep its wireless customers from switching to lower-priced rivals T-Mobile US Inc. and Sprint Corp., AT&T has offered packages of unlimited mobile data and TV service. Time Warner will represent about 15 percent of the combined company’s revenues.

The deal comes two years after Time Warner CEO Jeff Bewkes and his board rejected an $85-a-share offer from Rupert Murdoch’s 21st Century Fox Inc., which valued Time Warner at the time at more than $75 billion.

Original Programming

In the interim, Bewkes has focused on creating must-see original programming and acquiring sports rights to draw TV viewers and extract higher fees from AT&T and other distributors such as Comcast Corp. Time Warner also owns a 10 percent stake in web-streaming service Hulu LLC, which it paid $583 million for earlier this year, according to people with knowledge of that deal.

Bewkes, 64, will stay at the combined company for a transition period after the deal, he said on a conference call Saturday. No specific time has been set for how long he’ll stay.

In the second quarter, Time Warner’s Turner cable network had revenue of $3 billion, while HBO posted sales of $1.5 billion, and the Warner Bros. studio, producer of the “Harry Potter” franchise, “The Big Bang Theory” and DC Comics properties, had sales of $2.7 billion.

The merger is subject to approval by Time Warner shareholders as well as review by the U.S. Justice Department, and is expected to close by year-end 2017. Time Warner also has an airwaves license for a TV station in Atlanta, which could give the FCC jurisdiction to scrutinize the deal if that license is transferred to AT&T. They potentially could sell the station to escape FCC scrutiny.

Blank Page

The FCC’s newer rules have restricted growth for carriers in the telecom world. That’s driven them to integrate other businesses like television and media, Roger Entner, an analyst with Recon Analytics LLC in Dedham, Massachusetts, said in an interview before the deal was announced.

“The wildcard in all this will be the FCC,” Entner said. “It’s hard to predict what the regulators will do. They are pretty much starting with a blank page.”

Click here for an explainer on potential antitrust hurdles the deal could face

Entner chimed in on how the U.S. presidential election results might affect the deal. He said if Hillary Clinton wins, the regulatory stance will be similar to what we have today.

Trump, before the agreement was announced, said Saturday that he would look to block the deal if elected. He said such media combinations leave too much power concentrated among too few companies, including ones he says are hostile to his presidential bid and rigging the election for Clinton.

The policy director of Free Press, a Florence, Massachusetts-based telecommunications advocacy group, said the proposed deal “would cost internet users and TV viewers dearly.”

“Any time you hear media executives talking about synergies, throwing around the business-babble that always accompanies these rumors, you know it’s time grab your wallet and hang on tight,” Matt Wood said in an e-mail before the deal was announced.

With assistance from Gerry Smith

To contact the reporters on this story: Lisa Wolfson in Boston at, Scott Moritz in New York at