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AT&T CEO Says Time Warner Acquisition is Pro-Competition

17 Jan, 2017 By: Erik Gruenwedel



Repeating his non-discussion with Donald Trump about the pending merger with Time Warner, AT&T CEO Randall Stephenson Jan. 17 shed further light on the Jan. 12 meeting with the president-elect.

In an interview with The Wall Street Journal at the World Economic Forum Annual Meeting 2017 in Davos, Switzerland, Stephenson said the $84 billion deal — which includes Warner Bros., Turner and HBO — has been forwarded to the Department of Justice as part of the regulatory process.

“It’s following the normal process and seems to be going according to schedule. So far, no big issues,” he said.

Characterizing the transaction as a “classic vertical merger,” Stephenson contends the competitive environment in telecom and media entertainment will look exactly the same the day after the deal closes.

“We’re confident an assessment under the law will reveal that this is not anti-competitive, in fact we believe it is pro-competitive,” he said.

The 10-year CEO said the meeting with Trump focused on issues that would drive greater investment and job creation domestically.

“No secret where that [topic] went. It started with tax reform. Moved into regulatory rationalization and trying to improve on regulations all industries in the U.S. are under,” Stephenson said.

The executive said he was “taken” by Trump’s “inquisitiveness” on AT&T, and what tax reform would mean to the company, capital investment levels and how this translates into jobs and hiring.

Trump, during the campaign, said he would ask Congress to impose massive tax cuts across all income brackets, capital gains and at the corporate level (from 35% to 15%), including cutting most business deductions. A major caveat is that businesses could deduct the entire cost of asset acquisitions (such as Time Warner) up front, instead of over several years.

“I left [the meeting] with a fairly high degree of optimism," Stephenson said.

That is an understatement. AT&T is a money-generating machine, reporting $131.6 billion in operating revenue in 2015. Net income topped $13.6 billion, based on an effective income tax rate of 33.9% — nearly 19% above Trump’s proposed rate.

“We have become confident enough that we have begun to model into our 2018 plans higher economic growth and implications from tax reform. So it’s a big deal for a company like AT&T,” Stephenson said.

He said just assuming a lower tax rate has “significant stimulative impacts,” that would directly translate into higher investment and jobs. AT&T ended 2015 with more than 281,000 employees. 

Interestingly, AT&T hasn’t been shy about capital investments during the Obama Administration. It spent $49 billion acquiring DirecTV in 2015 before the Time Warner purchase. It has spent $140 billion on capital investments over the past five years, excluding Time Warner. It also has a $10 billion debt due this year, according to Fortune.com, in addition to $117 billion in long-term debt obligations. underscoring the need for a tax windfall.

When asked if anything worried him regarding acquiring CNN, which has been at odds with Trump recently over the release of an intelligence briefing regarding Russian interference in the presidential campaign, among other issues, Stephenson avoided the question, saying he could better get his head around tax reform.

“We can model and get a sense of what certain … scenarios look like,” he said.
 


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