AT&T merges with Time Warner

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On Oct. 22, 2016, AT&T announced its $85.4 billion projected merger with Time Warner Inc., sparking uncertainty from both business and political spheres alike.  As a result, CEOs of both companies—Randall Stephenson of AT&T and Jeff Bewkes of Time Warner–are set to appear before the Senate Judiciary Committee’s antitrust subcommittee Dec. 7 to assess whether or not the deal will create a potential monopoly.

According to Stephenson, the deal is meant to spark a new era of mobile entertainment and “premium content” for AT&T devices.  Time Warner assets acquired through the merger will include HBO and Turner channels such as CNN, TNT and Cartoon Network, as well as deals with Major League Baseball, the National Basketball Association and the National Collegiate Athletic Association.  As a result, other companies will have to negotiate with AT&T to obtain long-term licenses for these properties and networks.  The two companies aim to develop a mobile streaming technology for these networks that would provide a potential competitor to cable.  AT&T will also gain Time Warner’s 10 percent stake in the streaming service Hulu.

However, the merger could also bring higher prices to consumers and threaten their privacy.  AT&T now has rights over all of Time Warner’s data as well, which those opposed to the deal claim could pose a danger to consumers.  It could also create problems for other companies seeking out these properties, therefore leading to a decrease in customer choice.

While the verdict is still out on its actual impact to consumers, shares for both companies have begun to decrease only days after the deal.  In the eyes of many investors, the merger is a retread of AT&T’s failed alliance with AOL in 2000, a deal that ended miserably on both sides and created doubt over future mergers.  AT&T has financed much of the 85.4 billion dollars through stocks priced at 107.50 dollars a share, 19 percent higher than Time Warner’s current trading value.  This overpricing, detractors say, could lead to an underwhelming result in the future.

Currently, the combined company has about $175 billion in debts, which AT&T CFO John Stephens said will be paid off through “enough free cash flow…[to] maintain its investment grade corporate bond rating.”

Company projections state that the Time Warner deal will be finalized in winter 2017 following government reviews and shareholder voting.

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