Saturday, October 22, 2016

AT&T's Planned Acquisition Time Warner Focuses on Media + Communications

AT&T confirmed its intention to acquire Time Warner in a stock-and-cash transaction valued at $107.50 per share, representing a transaction value of $108.7 billion.

The companies said the reason for deal is to combine Time Warner's vast library of content and ability to create new premium content with AT&T's extensive customer relationships, world’s largest pay TV subscriber base and leading scale in TV, mobile and broadband distribution.

Time Warner, which was formed in 1990 through the merger of Time Inc. and Warner Communications, encompasses a number of premium media properties, including HBO, New Line Cinema, Turner Broadcasting System, The CW Television Network, Warner Bros., CNN, Cartoon Network, Boomerang, Adult Swim, DC Comics, Warner Bros. Animation, Castle Rock Entertainment, Cartoon Network Studios, Esporte Interativo, Hanna-Barbera Productions, Warner Bros. Interactive Entertainment. It also owns 10% of Hulu.

“This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers,” said Randall Stephenson, AT&T chairman and CEO. “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."


  • AT&T expects the deal to be accretive in the first year after close on both an adjusted EPS and free cash flow per share basis.
  • AT&T expects $1 billion in annual run rate cost synergies within 3 years of the deal closing due to expected cost synergies primarily driven by corporate and procurement expenditures.
  • 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, and AT&T is the leading pay TV distributor.
  • Lower capital intensity — Time Warner’s business requires little in capital expenditures, which helps balance the higher capital intensity of AT&T’s existing business.
  • Regulation — Time Warner’s business is lightly regulated compared to much of AT&T’s existing operations.
  • The companies hope to close the deal by the end of 2017, pending regulatory approvals.

  • In 2000, AOL purchased Time Warner for US$164 billion. The merger was unwound in 2009.

AT&T Revenue Flat in Q3

AT&T reported Q3 consolidated revenue of $40.9 billion, compared with $39.1 billion for the same period last year, with diluted EPS of  $0.54 as reported and $0.74 as adjusted, compared to $0.50 and $0.74 in the year-ago quarter. Revenue was down slightly on a comparable basis when factoring in DirecTV.  The company saw growth in video and IP services.

Some highlights for Q3:
  • 2.3 million wireless net adds driven by connected devices, Mexico and Cricket
  • U.S. wireless postpaid churn of 1.05%, down 11 basis points year over year
  • Strong U.S. wireless operating margin of 29.6%; best-ever U.S. wireless service EBITDA margin of 50.1%
  • 700,000 branded smartphones added to U.S. subscriber base
  • 80% of smartphone base off subsidy pricing
  • In Mexico, AT&T now has 10.7 million total wireless subscribers
  • 323,000 U.S. DIRECTV net adds with TV subscriber base stable
  • 171,000 IP broadband net adds
  • 6.7 million unlimited mobile+TV subscribers
  • Cash from operations of $11 billion in quarter; $29.2 billion year to date, up 9.4%
  • Capital investment of $5.9 billion; $16.2 billion year to date
  • Full-year guidance on track to meet or exceed expectations