Daily Management Review

Sources say Time Warner Agreed to be Bought by AT&T in Principle for $85 Billion


Sources say Time Warner Agreed to be Bought by AT&T in Principle for $85 Billion
Giving the telecom company AT&T Inc control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted media assets and paving the way for what would be the biggest deal in the world this year,, the telecom company has reached an agreement in principle to buy Time Warner Inc for about $85 billion according to sources quoted in the media.
In a time when telecommunications companies look to combine content and distribution to capture customers replacing traditional pay-TV packages with more streamlined offerings and online delivery, the deal, which has been agreed on most terms and could be announced as early as Sunday, would be one of the largest in recent years in the sector.
Through the buying satellite TV provider DirecTV last year for $48.5 billion, this company which sells wireless phone and broadband services, has already made moves to turn itself into a media powerhouse. The company has rolled out video streaming services after it entered a joint venture, Otter Media, with the Chernin Group to invest in media businesses in 2014.

Reuters reported quoting sources that AT&T will pay about $85 billion overall at $110 per Time Warner share in cash and stock. Since it only has $7.2 billion in cash on hand, it will need to line up financing to pay for the deal. And since it already has $120 billion in net debt as of June 30, according to Moody's, this could put pressure on its credit rating.
In the industry of movies, TV and video games, Time Warner is a major force. In addition to Warner Bros film studio, producer of the “Batman” and “Harry Potter” film franchises, its assets include the HBO, CNN, TBS and TNT. 10 percent stake in video streaming site Hulu is also owned by the company.
An $80 billion offer from Twenty-First Century Fox Inc was rejected by Time Warner Chief Executive Jeff Bewkes in 2014. Apple Inc approached Time Warner a few months ago about a possible merger, the Wall Street Journal reported on Friday.
As customers demand smaller, hand-picked cable offerings or switch to watching online, owning more content gives cable and telecom companies bargaining leverage with other content companies. And next-generation 5G networks could make a content tie-up especially attractive for wireless providers.
"We think 5G mobile is coming, we think 5G mobile is an epic game-changer," Rich Tullo, director of research at Albert Fried & Company, said in a note. A position to disrupt traditional pay-TV services would be achieved by mobile providers, Tullo added.
Time Warner its 2000 merger with AOL, is now considered one of the most ill-advised corporate marriages on record.

The strategy of buying content instead of licensing it was questioned by Cowen and Co analyst Doug Creutz.

"What does it get them that they can't get by licensing Time Warner content and at a much cheaper price than buying the whole company?" Creutz asked. What savings could be gained "from stapling distribution and content together. It's been tried. It never works" was unclear, Creutz added.
Regulators likely would put conditions on approval, some experts said while others said that AT&T would likely be able to win U.S. antitrust approval for the deal.
Government may worry about whether other cable and internet companies would continue to have access to Time Warner content like HBO and CNN, said Andre Barlow, an antitrust lawyer at the law firm Doyle.