AT&T to buy Time Warner for $85.4 bn

AT&T and Time Warner have entered into a definitive agreement under which AT&T will acquire Time Warner for $85.4 billion.

The deal combines Time Warners vast library of content and ability to create new premium content that connects with audiences around the world, with AT&Ts extensive customer relationships, world’s largest pay TV subscriber base and leading scale in TV, mobile and broadband distribution.

"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, chairman and CEO, AT&T.

"Well 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. We intend to give customers unmatched choice, quality, value and experiences that will define the future of media and communications," added Stephenson.

Time Warner chairman and CEO Jeff Bewkes said, "This is a great day for Time Warner and its shareholders. Combining with AT&T dramatically accelerates our ability to deliver our great brands and premium content to consumers on a multi-platform basis and to capitalize on the tremendous opportunities created by the growing demand for video content. That’s been one of our most important strategic priorities and we’re already making great progress - both in partnership with our distributors, and on our own by connecting directly with consumers."

Time Warner is a global leader in media and entertainment with a great portfolio of content creation and aggregation, plus iconic brands across video programming and TV/film production.

Each of Time Warner’s three divisions is an industry leader: HBO, which consists of domestic premium pay television and streaming services (HBO Now, HBO Go), as well as international premium & basic pay television and streaming services; Warner Bros. Entertainment, which consists of television, feature film, home video and videogame production and distribution. Warner Bros. film franchises include Harry Potter & DC Comics, and its produced TV series include Big Bang Theory and Gotham; Turner consists of US and international basic cable networks, including TNT, TBS, CNN and Cartoon Network/Adult Swim. Also, Turner has the rights to the NBA, March Madness and MLB. Time Warner also has invested in OTT and digital media properties such as Hulu, Bleacher Report, CNN.com and Fandango.

With a mobile network that covers more than 315 million people in the United States, the combined company will strive to become the first US mobile provider to compete nationwide with cable companies in the provision of bundled mobile broadband and video. It will disrupt the traditional entertainment model and push the boundaries on mobile content availability for the benefit of customers.

Owning content will help AT&T innovate on new advertising options, which, combined with subscriptions, will help pay for the cost of content creation. This two-sided business model - advertising- and subscription-based — gives customers the largest amount of premium content at the best value.

Time Warner shareholders will receive $107.50 per share under the terms of the merger, comprised of $53.75 per share in cash and $53.75 per share in AT&T stock. The stock portion will be subject to a collar such that Time Warner shareholders will receive 1.437 AT&T shares if AT&T’s average stock price is below $37.411 at closing and 1.3 AT&T shares if AT&T’s average stock price is above $41.349 at closing.

This purchase price implies a total equity value of $85.4 billion and a total transaction value of $108.7 billion, including Time Warner’s net debt. Post-transaction, Time Warner shareholders will own between 14.4 per cent and 15.7 per cent of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding today.

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. The expected cost synergies are primarily driven by corporate and procurement expenditures. In addition, over time, AT&T expects to achieve incremental revenue opportunities that neither company could obtain on a standalone basis.