Scatmag.com

July 2018

AT&T - TIME WARNER MERGER APPROVED


In October 2016, AT&T has announced its plan to acquire Time Warner for a payment of $85.4 billion, and a total of $108 billion with debt. The Department of Justice's (DoJ) moved court in March 2017 to block the merger, arguing it would reduce competition & hurt consumer choice.

On 13 June 2018, District Court Judge Richard J. Leon rejected the DoJ bid.


MEGA DEAL

The merger, including debt, is the fourth largest deal ever attempted in the global telecom, media and entertainment space. It is also the 12th largest deal in any sector, worldwide.

AT&T will be taking over $ 22.6 billion debt of Time Warner. The merged entity has more than $ 160 billion in debt. If it were a country, it would be placed 32nd on the list of highest total debt burdens, between Indonesia and the UAE.


NOT TOO BIG?

AT&T and Time Warner deal - big as it is - creates an entity, worth $300 billion. However, the so called "FAANG" companies (Facebook, Apple, Amazon, Netflix & Google), all of whom have made video a top priority; are worth $3 trillion collectively!



BLOW TO TRUMP

It was a high profile case given President Trump's public opposition to the deal. Time Warner owns CNN, which is the object of Trump's most focused hatred tweets & outbursts. The DoJ has claimed all along that its actions are not motivated by the White House.


STRONG VERDICT

In a scathing verdict, Judge Leon concluded that the DoJ had failed to show competitive harm and urged the U.S. government not to seek a stay of his ruling, saying it would be "manifestly unjust" to do so and not likely to succeed.

The verdict has brought hope to many other mega deals for vertical integration, that have stalled their proceedings, to see if the AT&T purchase was approved.

In fact, a couple of days later, Comcast formally submitted its full cash bid to buy out 21 Century Fox, competing with Disney's bid.



VERTICAL & HORIZONTAL MERGERS

The nuances of this case are important, as the implications of this decision reach far beyond the individual businesses of AT&T and Time Warner to the vast media landscape as a whole.

Its worth noting that the overall goal of antitrust regulations is to protect the consumer from unfair business practices that may arise from a consolidation of power.


VERTICAL MERGER

The AT&T - Time Warner merger is a vertical merger.

A vertical merger can be created in 2 ways.

i. One is when a company acquires another company which produces raw materials or services used by it. For example, a TV channel buys a content or program creation company.

ii. When a company buys another company which will help it get closer to the customer. For example, if a satellite channel buys a DTH platform, or if Coca Cola bought Mac Donald's.

The US government has fought 22 vertical mergers since 2000.


TIME WARNER

Pre-merger, Time Warner was the world's third largest media conglomerate, in terms of revenue, after Comcast and Walt Disney.

Time Warner is larger than Rupert Murdoch's 21st Century Fox.

KEY ASSETS

Time Warner's key assets include:

 Home Box Office, (HBO)

 Turner Broadcasting

 CNN News Group

 Warner Bros. Pictures, TV & Entertainment

 Investments include 10% in Hulu jointly with 21st Century Fox, Comcast & Walt Disney.



HORIZONTAL MERGERS

A horizontal merger is when 2 companies with the same activity merge, creating a much larger entity. These are usually far more dangerous in restricting public choice and restricting competition.

Dish TV's purchase of Videocon d2h is a vertical merger, that has created a company with 40% market share for DTH, against the TRAI's recommendations.



AT&T

AT&T is the largest telecom provider in the world. It also owns DirecTV - the largest DTH platform in the USA. That makes AT&T a content distributor.


TIME WARNER

Time Warner owns a large number of TV channels including CNN, HBO, Warner Bros, TNT & TBS.

It also has live sports content such as the NBA, MLB, and PGA.


SWIFT MERGER

Under a previous agreement, AT&T or Time Warner could terminate the deal if not completed by 21 June 2018. To meet this deadline, the merger was concluded in just 2 days after the court clearance.



AT&T

The original AT&T (American Telephone & Telegraph) was founded in 1885.

AT&T is a Fortune 10 company, with assets worth $ 444 billion & 34 consecutive years of quarterly dividend growth. In 2017 it had a revenue of $ 160 Billion and a net income of $ 29.45 billion. It is the world's largest telecommunications company.

In July 2015, AT&T purchased DirecTV for $67.1 billion including assumed debt. AT&T then converged its U-verse home internet & IPTV with DirecTV, to create

AT&T Entertainment. AT&T's products include: DTH, Fixed line & Mobile telephony, Broadband, Digital television, IPTV, OTT, Home & Network security, Film & TV production, Publishing, News agency & Video games.


TIME WARNER RENAMED

A week after the merger, AT&T announced that Time Warner has been renamed WarnerMedia.


Time Warner Has Been Renamed 'WarnerMedia'.


MERGER SYNERGIES

AT&T will get information on WarnerMedia viewers, needed to target digital advertising, much like Facebook Inc and Google already do.

AT&T will use content from WarnerMedia in its DirecTV Now streaming service, offering smaller bundles of Pay channels.


MERGED ENTITY

AT&T will be segmented into 4 businesses:

 AT&T COMMUNICATIONS: Mobile, broadband, video & communication in USA. Revenues were more than $150 billion in 2017.

 AT&T MEDIA: HBO, Turner and Warner Bros. Revenues exceeded $31 billion in 2017. The business will be renamed.

 AT&T INTERNATIONAL: Mobile telephony in Mexico & Pay-TV across 11 countries in South America and the Caribbean. Revenues exceed $8 billion in 2017.

 AT&T ADS & ANALYTICS: To provide marketers with advanced advertising solutions using customer insights from its TV, mobile and broadband services, combined with extensive ad inventory from Turner and AT&T's pay-TV services. A name for this company will be announced.

Time Warner CEO Jeff Bewkes will serve as a senior advisor to AT&T during a transition period. His direct reports including the heads of Turner, HBO and Warner Bros will report to John Stankey, CEO of AT&T's media business.


OTHER MERGERS

Now that the courts have cleared the AT&T-Time Warner vertical merger, it will spur many others sitting on the fence:


COMCAST BID FOR FOX

Comcast has already made a formal bid for Rupert Murdoch's 21st Century Fox. Fox planned to sell to Disney. SCaT magazine has been speculating that Rupert Murdoch wants to sell only to Disney, so that soon thereafter, his son James will assume the CEO position at Disney, effectively controlling both Disney and 21st Century Fox.

Comcast's bid is a huge unexpected headache in the plan.


CBS AND VIACOM

National Amusements is the controlling shareholder for both CBS & Viacom wants to re-merge both companies which were one but separated in 2005. It would reunite CBS' TV with Viacom's production studios.

It would also boost CBS' $6-a-month streaming service, adding Viacom's MTV, Nickelodeon, Comedy Central etc.


VERIZON-CBS ?

Verizon, which bought AOL and Yahoo in recent years, may be forced to buy other companies to keep pace with its largest rival AT&T.

Verizon also wants to challenge Google and Facebook in the huge and lucrative field of digital advertising.

CBS could be a potential target.


PARAMOUNT STUDIO

Viacom-owned Paramount studio has been on the chopping block earlier & remains a takeover target by a company seeking content creators.

Similarly, Lionsgate might be a potential takeover target by anyone from Amazon to Verizon or even a combined CBS-Viacom entity. As a smaller studio, Lionsgate needs to get bigger to compete in the current landscape.

n