U.S. operator AT&T has agreed to acquire the media group Time Warner for a combination of cash and stock worth US $85.4 billion. AT&T said the combination will enable it to deliver “the world’s best premium content” to every screen. AT&T will pay US $107.50 per Time Warner share, split 50-50 in cash and AT&T shares. Including Time Warner’s debt, the total transaction price is US $108.7 billion. After the deal, Time Warner shareholders will own between 14.4 and 15.7 percent of AT&T. AT&T is using existing cash and new debt to finance the takeover. The merger will require approval from the Federal Communications Commission and the Department of Justice, and the companies hope to complete the deal by the end of 2017.
This deal, if it is granted regulatory approval in its proposed form, would be a huge achievement in the pursuit of content by telecom operators. That quest has become increasingly important, as we have noted frequently, as traditional mobile services decline as sources of growth. Subscribers now expect entertainment and other media content as an essential component of their service, and to own the content rather than licensing it from another entity puts the operator in the most advantageous position.
For AT&T, acquiring a content provider of the status of Time Warner—which has HBO, CNN, TNT and the Warner Bros. film studio among other assets—would be a major coup. The operator has been growing; its recent expansion in Latin America and its acquisition of DirecTV last year make the Time Warner acquisition a natural next step. For Time Warner, the deal would give it access to a powerful, wide-ranging means of distribution for its content. However, the size of the deal and the market shares commanded by the two parties make it a subject of serious regulatory concern. It could be blocked entirely, or if not, the FCC and the Justice Department could impose more or less onerous conditions on it. That is what happened with the acquisition by Comcast of NBC Universal, when Comcast was required by the regulators to improve broadband coverage, safeguard net neutrality and make sure not to limit the distribution of content to competitors. The FCC has stated in the past that owning content and the means of distribution of that content can harm consumers and be detrimental to competition.