AT&T, Time Warner Merger No Slam Dunk

24 Oct, 2016 By: Erik Gruenwedel

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Public notice of the mega merger between AT&T and Time Warner may have been the easiest part of the $85 billion ($109 billion including debt) transaction, which now faces regulatory (Federal Trade Commission, DOJ), market and political scrutiny.

In an Oct. 23 post on Twitter, former Democratic presidential candidate Bernie Sanders said the Obama Administration “should kill the Time Warner/AT&T merger.” Sanders, an outspoken critic of corporate practices involving executive compensation, employees and consumer protection, said the merger would “mean higher prices and fewer choices for the American people.”

Democratic presidential nominee Hillary Clinton’s VP nominee Tim Kaine told Chuck Todd of “Meet the Press,” he had “concerns and questions” about the deal melding telecommunications and satellite distribution with Hollywood.

“Less concentration, I think, is generally helpful, especially in the media,” Kaine said.

Minnesota Senator Al Franken said the pact “raises some immediate flags,” reiterating why he opposed Comcast’s 2014 unsuccessful acquisition of Time Warner Cable.

“I'm skeptical of huge media mergers because they can lead to higher costs, fewer choices, and even worse service for consumers,” Franken wrote in an Oct. 22 post.

GOP presidential nominee Donald Trump has reportedly gone one step further, saying the deal, as well as Comcast’s acquisition of NBC Universal in 2011, “destroys democracy.”

Eric Wold, analyst with B. Riley & Co., contends regulators will focus on three main issues, including the impact of vertical integration on consumers; ensuring equal access to content across distribution platforms; and ensuring fair treatment of third-party networks and content providers across AT&T's distribution platforms, i.e. DirecTV and wireless.

Analysts Craig Moffett and Michael Nathanson say the absence of direct synergies (or strategic logic) between Time Warner and AT&T doesn’t necessarily render the deal “a bad idea.”

Contrasting with Comcast’s purchase of NBC Universal, MoffettNathanson contend that deal has worked well largely due to the acquisition price and success of Universal Studios and theme park; and not because of synergies with Comcast Cable or alternate distribution.

“The synergies between content and physical distribution, outside of some modest cross promotion — which could easily be acquired at arm’s length — haven’t [been real],” they wrote in an Oct. 24 note.

Regardless, AT&T CEO Randall Stephenson says he knows nothing about running a movie studio and would keep existing senior management at Warner Bros., HBO and Turner in place. He also scoffed at the notion the merger would be anti-consumer.

In an interview with CNN, Stephenson said restricting consumer access to Time Warner content “doesn’t make business sense.” 

In a separate post, David McAtee, SVP and general counsel at AT&T, said the merger underscores a new golden age of television. McAtee said online distribution of video has become an unstoppable force, with content being created at unprecedented levels.

“As a result, the question for the video industry is not what consumers want; it is whether today’s configuration of content creators, aggregators, and distributors can deliver it,” he wrote.

While the regulatory process will continue well into the 2017 (the Comcast/NBC union took 13 months to consummate), AT&T would have to pay $500 million to Time Warner if the deal is not finalized, while Time Warner is on the hook to AT&T for more than $1.7 billion if it accepts a better third-party offer.
 

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