The U.S. telecommunications multinational AT&T has entered into a definitive agreement to to acquire Time Warner in a stock-and-cash transaction valued at $107.50 per share. The agreement has been approved unanimously by the boards of directors of both companies. The acquisition and merger has been announced today by AT&T.
The deal combines Time Warner’s vast library of content and ability to create new premium content that connects with audiences around the world, with AT&T’s extensive customer relationships, world’s largest pay TV subscriber base and leading scale in TV, mobile and broadband distribution.
The merger is still subject to approval by Time Warner Inc. shareholders and review by the U.S. Department of Justice. AT&T and Time Warner are currently determining which FCC licenses, if any, will be transferred to AT&T in connection with the transaction. To the extent that one or more licenses are to be transferred, those transfers are subject to FCC review. The transaction is expected to close before year-end 2017.
Randall Stephenson (AT&T Chairman and CEO) will keep on as the leading head of the new company. Time Warner Chairman and CEO Jeff Bewkes will stay for an interim period following the close of the deal.
The acquisition of Time Warner comes after the announcement that AT&T is working to launch an OTT service called DirecTV.
This is one of the most sound purchases of content providers by telco’s, AT&T included, which have been agreed in recent years.
Disruptive mobile-integrated business model
With a mobile network that covers more than 315 million people in the United States, the combined company will strive to become the first U.S. mobile provider to compete nationwide with cable companies in the provision of bundled mobile broadband and video.
It will disrupt the traditional entertainment model and push the boundaries on mobile content availability for the benefit of customers. And it will deliver more innovation with new forms of original content built for mobile and social, which builds on Time Warner’s HBO Now and the upcoming launch of AT&T’s OTT offering DirectTV Now.
“The future of video is mobile and the future of mobile is video,” AT&T underscores.
In Randall Stephenson’s view: “Premium content always wins. It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen. We’ll have the world’s best premium content with the networks to deliver it to every screen. A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that. We intend to give customers unmatched choice, quality, value and experiences that will define the future of media and communications.
“With great content, you can build truly differentiated video services, whether it’s traditional TV, OTT or mobile. Our TV, mobile and broadband distribution and direct customer relationships provide unique insights from which we can offer addressable advertising and better tailor content,” Stephenson said and concluded, “It’s an integrated approach and we believe it’s the model that wins over time.”
Owning content will help AT&T as well innovating on new advertising options, which, combined with subscriptions, will help pay for the cost of content creation.
“This two-sided business model (advertising- and subscription-based) gives customers the largest amount of premium content at the best value”, underscores AT&T.
What Time Warner brings to AT&T
Time Warner is a global leader in media and entertainment with a great portfolio of content creation and aggregation, and iconic brands across video programming and TV/film production.
Time Warner’s three divisions include:
Turner.- Featuring U.S. and international basic cable networks, including TNT, TBS, CNN and Cartoon Network/Adult Swim, and has sports right that include the National Basketball Association, NCAA Men’s Championship Basketball Tournament, and Major League Baseball.
HBO.- Featuring domestic premium pay television and streaming services (HBO Now, HBO Go) featuring such original series as Game of Thrones, VEEP, and Silicon Valley, as well as international premium & basic pay television and streaming services.
Warner Bros. Entertainment.- Television, feature film, home video and videogame production and distribution. Film franchises include Harry Potter, DC Entertainment, and LEGO; TV series produced include The Big Bang Theory, The Voice, and Gotham. Time Warner also has invested in over-the-top and digital media properties such as Bleacher Report, Hulu and Machinima.
In September 2006 Time Warner Investments led a $12 million Series B funding round for You.i TV. This platform powers the design, development, and delivery of immersive user interfaces for video applications across multiple devices.
AT&T Inc. helps millions around the globe connect with leading entertainment, mobile, high-speed Internet and voice services. The multinational is world’s largest provider of pay TV. The company has TV customers in the U.S. and 11 Latin American countries.
AT&T has deployed direct-to-customer distribution across TV, mobile and broadband in the U.S., mobile in Mexico and TV in Latin America.
Time Warner also provides AT&T a more diversified revenue mix, and a lower capital intensive business and a lighter regulated activity.
Time Warner will represent about 15% of the combined company’s revenues, offering diversification from content and from outside the United States, including Latin America, where Time Warner owns a majority stake in HBO Latin America, an OTT service available in 24 countries.
A $108.7Bn transaction
The purchase price, $53.75 per share of Time Warner in cash and $53.75 per share in AT&T stock means a total equity value of $85.4Bn and a total transaction value of $108.7Bn, including Time Warner’s net debt. Post-transaction, Time Warner shareholders will own between 14.4% and 15.7% of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding today.
The stock portion will be subject to a collar such that Time Warner shareholders will receive 1.437 AT&T shares if AT&T’s average stock price is below $37.411 at closing and 1.3 AT&T shares if AT&T’s average stock price is above $41.349 at closing.
The cash portion of the purchase price will be financed with new debt and cash on AT&T’s balance sheet. AT&T has an 18-month commitment for an unsecured bridge term facility for $40Bn.
Image over the headline.- © AT&T and © Time Warner.
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