AT&T reaches deal to buy Time Warner for more than $80 billion

AT&T has clinched an $85.4 billion agreement to acquire Time Warner in a stock and cash deal that values the media giant at $107.50 per share, capping a whirlwind few days of negotiations that promise to turn AT&T into one of the film and TV industry's largest players.

"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, AT&T chairman and CEO. "Premium content always wins. It has been true on the big screen, the TV screen and now it's proving true on the mobile screen. We'll 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."

Including Time Warner's roughly $24 billion in debt, the transaction value is pegged $108.7 billion. The deal calls for AT&T to pay Time Warner shareholders $53.75 per share in cash and $53.75 in AT&T stock. Time Warner shareholders will own between 14.4% and 15.7% of the combined company after the deal closes.

The deal was approved unanimously by the boards of both companies on Saturday.

AT&T emphasized the transaction as a marriage of video, content and mobile services. "The future of video is mobile and the future of mobile is video," AT&T declared in announcing the deal. AT&T predicted it would realize $1 billion on cost savings through the combination of the companies within the three years of the deal closing.

Time Warner chairman-CEO Jeffrey Bewkes lauded the union as a deal that will allow the company's content engines to grow with the benefit of AT&T's multiplatform distribution strength.

"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 multiplatform basis and to capitalize on the tremendous opportunities created by the growing demand for video content," Bewkes said. "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. Joining forces with AT&T will allow us to innovate even more quickly and create more value for consumers along with all our distribution and marketing partners, and allow us to build on a track record of creative and financial excellence that is second to none in our industry. In fact, when we announce our 3Q earnings, we will report revenue and operating income growth at each of our divisions, as well as double-digit earnings growth."

Bewkes added: "This is a natural fit between two companies with great legacies of innovation that have shaped the modern media and communications landscape."

The deal marks a transformational play by Stephenson, one that will leave the telco giant with a debt load of nearly $200 billion. It comes just 15 months after AT&T absorbed the DirecTV satellite service in a $48 billion acquisition.

For Time Warner, the union with AT&T comes 16 years after the company's fortunes were badly damaged in the ill-timed merger with AOL at the apex of the first wave of dot-com mania, and some 26 years after the merger of Time Inc. and Warner Bros. set the template for the modern diversified and vertically integrated media conglomerate.

But Bewkes has spent his eight-year tenure at the top paring down the company to three core units — HBO, Warner Bros., and Turner — squarely focused on film and TV content. The Time Warner Cable and AOL units were spun off in 2009, followed in 2014 by the Time Inc. publishing division. That streamlining process made the company more easily acquired by another sizable industry player and also made it easier for TW to command a premium for its blue-chip assets.

The AT&T deal will wind up paying a TW shareholders a premium of about 35% over the stock's recent trading price. After Bloomberg News reported the first word of the AT&T-Time Warner talks on Thursday afternoon, TW shares spiked more than 10%, closing Friday at $89.48.

AT&T's pursuit of Time Warner was hurried along by the rumblings in the marketplace that Apple was ready to approach Time Warner with a rich offer. Apple is known to have flirted with a Time Warner deal in the not-so-distant past.

AT&T aims to enhance its DirecTV business, high-speed Internet and wireless offerings by bringing Time Warner's top-tier content — from HBO and the Turner cable networks to Warner Bros.' vast film and TV operations — into the fold. Because AT&T owns the industry's largest MVPD in DirecTV and is a player in Internet access, the deal will face an arduous regulatory review process in an uncertain political environment for media mega-mergers.

On Saturday, even before the formal announcement, Republican presidential nominee Donald Trump said he would block the AT&T-Time Warner deal if he is elected president.

In a sign of how hotly a contested subject the deal will be, the American Cable Association trade group representing smaller operators was quick to raise concerns about the market power that a combined AT&T-Time Warner would wield.

"As the FCC has found in past mergers, combining valuable content with pay-TV distribution causes harm to consumers and competition in the pay-TV market," the ACA said in a statement issued today. "If an AT&T/Time Warner deal is forged as reported, the vertical integration of the merged company must be an issue that regulators closely examine."