AT&T (NYSE:T) and Time Warner (NYSE:TWX) are the latest to announce a mega merger designed to combine content, distribution, and mobile services under one roof.
"With great content, you can build truly differentiated video services, whether it's traditional TV, OTT or mobile," said Randall Stephenson, AT&T chairman and CEO. "Our TV, mobile and broadband distribution and direct customer relationships provide unique insights from which we can offer addressable advertising and better tailor content."
Specifically, AT&T will acquire Time Warner in a stock-and-cash transaction valued at $107.50 per share, which amounts to about $85.4 billion. The deal is subject to approval by Time Warner shareholders and review by the U.S. Department of Justice. Any necessary license transfers are subject to FCC review.
What's the buzz about the agreement? Analysts like Seth Wallis-Jones, senior analyst at IHS Technology, acknowledge that the combination of AT&T and Time Warner would create a company with "significant synergistic scale."
"Across the world, content has become a key tool for network operators seeking to differentiate themselves from their competitors, and an opportunity for growth as operator services subscription slows in the face of market saturation," Wallis-Jones said.
He went on to say that in comparison, Verizon's (NYSE:VZ) deal to acquire Yahoo! looks like a "half-baked attempt to leverage the potential nexus between network, content and advertising."
IHS Technology colleague Ted Hall, director of research, notes that AT&T lost 132,000 subscribers across DirecTV and U-verse in the 12 months ending in Q3 2016. AT&T has on tap two online subscription offerings, DirecTV Now, a virtual pay TV offering, and DirecTV Mobile, a mobile-led skinny bundle.
"License to package content sourced from Time Warner networks HBO, TNT, Cartoon Network, as well as the Warner Bros. studio, would give AT&T the opportunity to make both services highly compelling," Hall said.
The AT&T/Time Warner deal, however, stands to face much scrutiny. "The deal will attract widespread scrutiny from regulators as it affects the interests of rival firm subscribers which is at stake," said Katherine Dennys, research editor, Mergermarket.
Presidential candidate Donald Trump already has said he feels the combination of the two companies would put "too much concentration in the hands of too few."
A New York Times story has speculated that the merger would face a tougher regulatory review than the Comcast acquisition of NBCUniversal, since there is a large wireless component. And if Hillary Clinton wins the election, she will feel pressure to follow up on statements she would be tough on consolidation.
"By standard antitrust metrics, this deal should be OK in Washington. But the Democratic Party is moving left, and if Clinton wins, this could become an early test for her 'tougher on business' rhetoric," Paul Gallant, a technology, media and telecom policy analyst for Cowen & Co., told the Times.
The Senate Judiciary Committee's antitrust subcommittee already has set a date for a hearing. The CEOs of the two companies are set to testify Dec. 7.
Craig Moffett and Michael Nathanson, of MoffettNathanson, felt the deal lacks "strategic logic," particularly because the price is too high, according to CNN Money. The proposal values Time Warner at more than 12 times 2017 estimates for earnings before interest, taxes, depreciation and amortization (EBITDA). In comparison, Comcast/NBCUniversal was valued at nine times EBITDA.
During a conference call, Amir Rozwadowski of Barclays asked why AT&T would take this on when DirecTV is still being integrated. Stephenson said this would mostly be done by the end of 2017 and that he didn't want to be behind other companies when it comes to content.
"We want to be at the front of this. We don't want to be chasing it," Stephenson said, according to CNN Money.
