In its goal to become a media giant, AT&T has agreed to acquire Time Warner for $85.4 billion, the company reported Saturday. But the deal isn’t done yet, and it could face tough scrutiny by regulators over competition concerns.
AT&T has said the acquisition, which it expects to close by the end of 2017, would strengthen the video capabilities of AT&T, which became the largest U.S. pay-TV provider after acquiring DirecTV for $48.5 billion last year. With Time Warner’s capabilities, AT&T expects to offer its customers enhanced access to premium content across devices as well as options for mobile and streaming services. It also expects to offer a “competitive alternative to cable TV.” It will also give AT&T control over networks including CNN, HBO, and Warner Bros. Entertainment.
Dallas-based AT&T expects to save $1 billion in costs within three years of the deal closing. Time Warner will represent 15 percent of AT&T’s revenue. AT&T agreed to pay $107.50 per share, with the value of the transaction totaling $108.7 billion, including Time Warner’s net debt.
Though both company’s boards voted unanimously for the acquisition, the deal still has to jump a few regulatory hurdles before it’s approved. First, the acquisition would have to be approved by shareholders and the Department of Justice. It would also need approval from the Federal Communications Commission, if any FCC licenses are to be transferred as part of the deal. It’s still unclear whether that will be the case.
Last year, the FCC stalled AT&T’s acquisition of DirecTV, as well as the $45.2 billion Comcast/Time Warner Cable merger. The commission was waiting for the results of a court case that resulted after it said it would give third parties commenting on the deals access to video-programming contracts between the companies involved. Television channel owners didn’t want any sensitive information to be released, as it could harm the competitiveness of their companies. But once that issue was resolved, the FCC gave the AT&T/DirecTV merger the green light, and the DOJ followed shortly thereafter.
While AT&T ended up completing its acquisition of DirecTV, Comcast’s deal died. The DOJ said the merger would reduce competition in the industry and planned to file an antitrust lawsuit against the deal. Comcast withdrew, allowing Charter Communications to buy Time Warner Cable in May for about $60 billion.
Washington has already raised an eyebrow at AT&T’s agreement with Time Warner, according to Reuters. On Sunday, Republican presidential candidate Donald Trump, Democratic vice presidential candidate Tim Kaine, and U.S. lawmakers all raised antitrust concerns. Democratic presidential candidate Hillary Clinton said there was still a lot of information that needed to come out about the deal, Reuters reported.
But AT&T CEO Randall Stephenson isn’t worried. He is confident the deal will close, according to Reuters.
There is “no competitive harm that is being rendered by putting these two companies together, so any concerns by the regulators, we believe, will be adequately addressed by conditions,” he told reporters Sunday, according to Reuters.
While the deal appeared to have moved quite quickly, it shouldn’t come as much of a surprise to those who follow the telecommunications industry closely.
The telecom industry has been experiencing incredible transformation over the past several years, as new technology companies enter the space. For example, Google and Facebook have been dipping their toes in fiber offerings—an area AT&T has been capitalizing on since it introduced GigaPower, now called AT&T Fiber. Google has also been working on Project Fi, which shifts between networks to provide its customers Wi-Fi or 4G LTE mobile connectivity. The tech giant partnered with Sprint and T-Mobile for the project. Smaller nimble players have been churning out various over-the-top voice and texting services, or those that run via the internet.
Meanwhile, media technology companies have been staking their claim on entertainment. Amazon and Netflix have become major competitors to the offerings of companies like DirecTV, which under AT&T is aiming to catch up by pushing out integrated mobile streaming offerings.
While it’s too soon to presume whether the deal will be completed, one thing is clear: AT&T is hungry, and it’s keeping its eyes on companies it can gobble up as it expands its presence in the media and entertainment industry.