Now that AT&T’s plan for an $85 billion acquisition of Time Warner is official, the big question is whether or not it will make it through the review process by US regulators. Even before the deal was announced it faced harsh skepticism among analysts. By Monday, both presidential campaigns had raised their concerns about the deal. The move means AT&T will own networks like CNN and HBO, and the question regulators have to answer is whether a tie-up like this is unfair to consumers and competitors. Investors are clearly thinking that the answer could be yes. Time Warner’s shares are trading well below AT&T’s takeover offer, and Bloomberg’s measure of deal probability puts the odds of this one closing at just 25%. AT&T’s shares are also slipping, extending a decline that began when news of the deal talks first broke. The companies are working hard to discourage the doubters. Since Saturday night, AT&T CEO Randall Stephenson and Time Warner CEO Jeff Bewkes have been making the case for why they’re confident the deal will go through, that it won’t be blocked like when AT&T tried to acquire T-Mobile in 2011.
It’s different this time, they say. And they’re right about that. The issue with T-Mobile was that AT&T was about to take out a direct rival, and reduce competition in the wireless telecom industry. That’s not what’s happening here. Here are the highlights of their arguments:
On a conference call with reporters Saturday night, Stephenson stressed that the acquisition was a vertical integration, meaning AT&T and Time Warner don’t currently compete and therefore the acquisition won’t be taking a competitor out of the market.
He argued that this is much different than AT&T’s attempted takeover of T-Mobile in 2011 and is more like Comcast’s takeover of NBC Universal, which did get past the regulators.
Despite Stephenson and Bewkes’ argument that this deal wouldn’t eliminate competition from the market, there have been signs that regulators aren’t a fan of vertical deals like this.
But Stephenson said he thinks any concerns could be put to rest by offering concessions like Comcast did with NBC.
“While regulators will often times have concerns with vertical integrations, those are always remedied by conditions imposed on the merger,” Stephenson said on an interview with CNBC Monday morning. “And so that’s how we envision this one to play out.”
We won’t learn what those concessions are until AT&T starts moving forward with the regulatory review.
- Thomson Reuters
Good for consumers
As viewing habits shift from traditional linear TV to mobile and over-the-top internet services, AT&T thinks this will be a win for customers. The company says it will make it easier to get the content they like from HBO, CNN, TNT, and others on more devices.
For example, AT&T, through its acquisition of DirecTV last year, will launch a new streaming service in November called DirecTV Now, which will let you watch pay TV over the internet on any device. Owning a lot of that content through Time Warner makes services like that even easier to build.
The argument against the merger
Rich Greenfield, an analyst at research firm BTIG, has been one of the most vocal pundits against the AT&T/Time Warner deal. He said AT&T could raise the price of Time Warner content, which is harmful to consumers who don’t have AT&T. It gives AT&T an unfair advantage and costs most consumers in the long run.
“Let’s be honest, prices aren’t going to go down because of this,” Greenfield told the New York Times on Sunday.
Time Warner’s stock was at about $87 Monday morning, far below the $107.50 per share AT&T is offering to pay. Typically, the stock of a target company pushes closer to the sale price if investors think a merger like this will be approved.