The $US85 billion AT&T agreed bid to buy cable giant, Time Warner will not be easy and could very well be blocked, despite what American urgers for the deal claim.
The size of scope of the proposed takeover means it will get the closest examination by US politicians and regulators – after the November 8 polls.
The deal is sector changing – it will give AT&T control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted media assets, making the merged company by far the biggest media group, ranking ahead of Disney, Comcast and well ahead of its Telco rivals, led by Verizon (it would be double Verizon’s size).
By way of contrast, the Murdoch family’s 21 Century Fox would be a ’tiddler’ valued around just on $US48 billion.
While the tie-up will likely face intense scrutiny by US antitrust enforcers worried that AT&T might try to limit distribution of Time Warner material, the political side represents a minefield and the real threat to its success.
Donald Trump told an audience in the US at the weekend that he would block the deal if elected. The acquisition would give AT&T “it’s too much concentration of power in the hands of too few", he claimed on Saturday. It’s unlikely he will be elected, but it is a clue big takeovers are facing increasing scepticism.
Hillary Clinton this month promised to “strengthen anti-trust enforcement and really scrutinise mergers and acquisitions, so the big don’t keep getting bigger and bigger”, in a speech in Toledo, Ohio. Analysts point out that Mrs Clinton is under pressure from the likes of Democratic senator Elizabeth Warren, who warned this midyear that “competition is dying”.
With Trump already opposing the AT&T deal, Mrs Clinton will face growing pressure to issue a statement soon, and reveal he stance on the huge merger. if she is favourable (she is close to many Wall Street banks) she faces problems with the left of the Democratic Party and many other Americans who no longer trust business.
AT&T will pay $US107.50 per Time Warner share, half in cash and half in stock, worth $US85.4 billion overall. AT&T said it expected to close the deal by the end of 2017.
Time Warner shares closed on Friday at $US89.48, valuing it at close to $US73 billion. The shares were trading below $US80 at the beginning of last week before news of the talks with AT&T sent them running higher.
AT&T said the US Department of Justice would review the deal and that it and Time Warner were determining which Federal Communications Commission licenses, if any, would be transferred to AT&T in the deal. While it is a Telco, AT&T made its first major move into the media business last year when it bought satellite TV provider DirecTV last year for $US48.5 billion.
It had about 142 million North American wireless subscribers as of June 30, and about 38 million video subscribers through DirecTV and its U-verse service.
Time Warner (which rejected an $US80 billion offer from 21st Century Fox two years ago) is a major force in movies, TV and video games. Its major assets include the HBO, CNN, TBS and TNT networks as well as the Warner Bros film studio. The company also owns a 10 percent stake in video streaming site Hulu. The HBO network alone has more than 130 million subscribers.
Earlier last year Comcast, the biggest cable group, tried to buy Time Warner for $US45 billion, but that was rejected by regulators. In 2015, Charter, controlled by John Malone, paid $US71 billion) a total of for Time Warner Cable and BrightHouse cable groups (it was Charter’s second attempt for time Warner, whch rejected the first offer as being too cheap, which it was).
AT&T said the cash portion of the purchase price would be financed with new debt and cash on its balance sheet (only $US7.2 billion). AT&T said it has an 18-month commitment for an unsecured bridge term facility for $US40 billion from JPMorgan and Bank of America which rounded up the money over the weekend. AT&T, unless it issues more equity to replace the debt, faces a big ratings downgradeas it alrerady had $US120 billion of debt on its balance sheet.
The total value of the merger of the two companies will boost their combined value well over $US310 billion ($US230 billion for AT&T and $US85 billion for Time Warner). Debt of around $US160 billion will be 50%, which is a high gearing even in these days of low interest rates.
Ratings groups will want to see that dropped sharply by asset sales or new equity issues. A rise in interest rates in December, while not a disaster, will pressure the share prices of both companies until the future of the bid is sorted out. interestingly AT&Ts advisers include Peter Chernin, Rupert Murdoch’s former second-in-command at News Corp. Mr Chernin is partners with AT&T in Otter Media, a digital media group.
