Published reports indicate AT&T has terms in place for an acquisition of Time Warner valued at $85 billion, which could be announced as soon as Sunday
Following up on chatter from earlier today, new reports now suggest AT&T has reached terms on a possible acquisition of Time Warner valued at around $85 billion.
According to Reuters, the deal could be announced as soon as Sunday and would give AT&T control over a vast collection of media assets, including HBO, CNN and Warner Bros Studios.
The terms include AT&T paying $110 per share for control of Time Warner, which is a significant premium over its $89.48 closing price on Friday. Time Warner’s stock surged nearly 8% following earlier reports about a potential deal with AT&T.
AT&T’s stock, on the other hand, dropped 3% on Friday, compared to a modest .09% loss for the broader New York Stock Exchange, with investors apparently worried about the telecom giant going after such a high-priced target. Analysts have noted such a price could drop AT&T’s debt rating to a mid-“BBB” grade, which is considered a lower-medium grade for investment-grade ratings, and further add to the carrier’s approximately $127 billion in debt.
On the other hand, if AT&T does move and eventually consummates an acquisition of Time Warner, the company would gain access to a significant haul of media content it could use to bolster its growing diversification efforts.
AT&T in mid-2015, closed on a $48.5 billion acquisition of DirecTV, which bolstered the company’s reach into the pay-television market. The carrier has since moved to combine the DirecTV assets with its legacy U-verse IP-based television offering as well as its wireless assets.
The carrier also is on the hook for more than $18 billion tied to winning spectrum in the government’s AWS-3 proceedings last year, and has said it would spend at least $9 billion on spectrum in the current 600 MHz incentive auction process as part of the conditions required to gain government approval for the DirecTV deal.
Industry observers have noted telecom operators would likely need to look at gaining control over diverse media assets in order to differentiate themselves in the market and build on current network investments tied to greater reach of broadband services and plans for “5G” wireless technologies.
“Faced with increasing consumer demand for digital content, communications companies are under pressure to expand their capabilities,” explained Accenture Strategy in a recent RCR Wireless News Reality Check column. “They need to build and enhance their digital platforms to remain relevant to consumers and survive in an increasingly competitive marketplace. And they’re turning to mergers and acquisitions to do it.”
AT&T rival Verizon Communications is also taking to the M&A path in terms of expanding its reach beyond traditional telecom services. The company last year acquired AOL for $4.4 billion, which in turn acquired Millenial Media for $248 million.
Those deals followed Verizon’s acquisition of Intel Media for internet video technology, content delivery network EdgeCast Networks and live video encoder UpLynk. The company is also in the process of acquiring Yahoo.
Cable television giant Comcast, which owns media properties NBC and Universal, is also looking to expand into the mobile telecom space tapping into a mobile virtual network operator agreement with Verizon Wireless. Such a move, when combined with the company’s public Wi-Fi service, could open up new distribution opportunities for its collection of content.
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