Report: AT&T deal for Time Warner could happen this weekend

By Jim O'Neill on Oct 21 2016 at 5:30 AM
Report: AT&T deal for Time Warner could happen this weekend

Talks between senior executives of AT&T and Time Warner are spurring takeover talks that bumped Time Warner stock nearly 5% Thursday and nearly 10% Friday after a report that a merger could come as soon as this weekend.

The Wall Street Journal reported the potential deal was near, following an earlier Bloomberg report, citing unnamed sources “familiar with the matter,” that the two had informal discussions about a possible deal, but said the meetings were preliminary.

Time Warner has a large portfolio of entertainment and broadcast companies that includes HBO, CNN, Turner Broadcasting, the Cartoon Network, New Line Cinema, Warner Bros. and more.

It’s been a takeover target before, most recently in 2014, when 21st Century Fox made a $75 billion bid for the company, offering $85 a share. CEO Jeff Time Warner’s board and CEO Jeff Bewkes rejected the offer.

A bid today would cost substantially more, especially with its stock price rising to nearly $83/share pushing its valuation to $64.5 billion.

When news of the Fox bid broke in 2014, it was trading near $70 a share, and even then, Time Warner indicated that it would take at least a $100/share offer for it to sell.

Time Warner also has since bought a 10% stake in Hulu, further increasing its value.

Could AT&T afford to buy it? Not with cash. The telco has just $7.2 billion cash on hand, and just last year paid $48.5 billion for DirecTV and another $18 billion on spectrum in the FCC airwaves auction, pushing its debt to roughly $120 billion. But a deal of this size and impact would also likely have to go through regulators, and that would give AT&T time -- possibly up to a year -- to put together financing.

Time Warner would be an interesting feather in AT&T’s cap, and could help it navigate the pay-TV future.

AT&T has said its soon-to-launch, Cloud-based DirecTV Now platform will deliver low margins and is likely to cannibalize its legacy TV platforms, U-verse and DirecTV. But it nonetheless sees the platform as its future.

As content costs continue to increase, cuttring into pay-TV margins industry wide, having a content producer like Time Warner in its portfolio – a la Comcast and NBCUniversal – could help reduce the cost of content signficantly for AT&T and put in in the position of selling to rivals. The $28.2 billion in revenues Time Warner brought in last year also would be a nice add to the balance sheet.

Stay tuned.

Follow me on Twitter @JimONeillMedia and on LinkedIn

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