AT&T has agreed to acquire the media group Time Warner for a combination of cash and stock worth USD 85 billion. After expanding to Latin America and acquiring satellite TV provider DirecTV last year, AT&T is looking to video content for its next area of growth, acquiring with Time Warner assets such as HBO, CNN, TNT, Turner and the Warner Bros film studio. AT&T said the combination will mean networks to deliver "world's best premium content" to every screen.
AT&T will pay USD 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 USD 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.
AT&T expects Time Warner to add to adjusted EPS and free cash flow within a year of closing deal, as well as contribute USD 1 billion in annual synergies, mainly in purchasing. In addition to creating a new growth area in the face of a slowing mobile market in the US, Time Warner will help diversify AT&T's revenue base and reduce capital intensity, meaning a greater share of revenue leftover for dividend. AT&T expects net debt to adjusted EBITDA to be around 2.5x after the takeover.
The merger will require approval from the FCC and Department of Justice, and the companies hope to complete the deal by the end of 2017. If approved, the deal may face regulatory conditions similar to cable operator Comcast's takeover of NBC Universal, when it was required to commit to improving broadband coverage, upholding net neutrality and not limiting distribution of NBCU content to rivals. The American Cable Association called for regulators to "closely examine" the deal, noting that in the past the FCC has found "combining valuable content with pay-TV distribution causes harm to consumers and competition in the pay-TV market".
