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Sun 23 Oct 2016 10:39 AM

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AT&T to create telecom-media giant with $85bn acquisition of Time Warner

The biggest deal in the world this year will give AT&T control of cable TV channels HBO and CNN, and film studio Warner Bros

AT&T to create telecom-media giant with $85bn acquisition of Time Warner
This combination of pictures created on October 21, 2016 shows an AT&T cellphone store (TOP) in Springfield, Virginia, on October 23, 2014, and the Time Warner company logo on the front of the headquarters building, 24 November, 2003 in New York. Telecom heavyweight AT&T has struck a deal to buy entertainment powerhouse Time Warner for $108.7 billion, October 22, 2015 to create a media-tech behemoth. (Saul Loeb and Stan Honda/AFP/Getty Images)

AT&T said on Saturday it agreed to buy Time Warner for $85.4 billion (70 billion pounds), the boldest move yet by a telecommunications company to acquire content to stream over its high-speed network to attract a growing number of online viewers.

The biggest deal in the world this year will, if approved by regulators, give AT&T control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted media assets. The tie-up will likely face intense scrutiny by US antitrust enforcers worried that AT&T might try to limit distribution of Time Warner material.

AT&T will pay $107.50 per Time Warner share, half in cash and half in stock, worth $85.4 billion overall, according to a company statement. AT&T said it expected to close the deal by the end of 2017.

Dallas-based AT&T said the US Department of Justice would review the deal and that it and Time Warner were determining which Federal Communications Commission licenses, if any, would be transferred to AT&T in the deal.

US lawmakers were already worried about cable company Comcast Corp's $30 billion acquisition of NBCUniversal, creating an industry behemoth. Several argued for close regulatory scrutiny of the AT&T deal.

"Such a massive consolidation in this industry requires rigorous evaluation and serious scrutiny," said US Senator Richard Blumenthal, former attorney general of Connecticut. "I will be looking closely at what this merger means for consumers and their pocketbooks."

US Republican presidential nominee Donald Trump said at a rally on Saturday he would block any AT&T-Time Warner deal if he wins the Nov. 8 election. Trump has complained about media coverage of his campaign, especially by Time Warner's CNN.

"It's too much concentration of power in the hands of too few," said Trump.

Representatives of his Democratic rival, Hillary Clinton, did not immediately respond to a request for comment.

Content plus delivery

AT&T, whose main wireless phone and broadband service business is showing signs of slowing, has already made moves to turn itself into a media powerhouse. It bought satellite TV provider DirecTV last year for $48.5 billion.

It had about 142 million North American wireless subscribers as of June 30, and about 38 million video subscribers through DirecTV and its U-verse service.

New York-based Time Warner is a major force in movies, TV and video games. Its assets include the HBO, CNN, TBS and TNT networks as well as the Warner Bros film studio, producer of the “Batman” and “Harry Potter” film franchises. The company also owns a 10 percent stake in video streaming site Hulu. The HBO network alone has more than 130 million subscribers.

The deal is the latest in the consolidation of the telecom and media sectors, coming on the heels of AT&T's purchase of NBCUniversal. AT&T's wireless rival Verizon Communications is in the process of buying internet company Yahoo for about $4.8 billion.

Time Warner Chief Executive Officer Jeff Bewkes rejected an $80 billion offer from Twenty-First Century Fox in 2014.

Financing

AT&T said the cash portion of the purchase price would be financed with new debt and cash on its balance sheet. AT&T said it has an 18-month commitment for an unsecured bridge term facility for $40 billion.

AT&T currently has only $7.2 billion in cash on hand. Further borrowing could put pressure on its credit rating as it already had $120 billion in net debt as of June 30, according to Moody's.

AT&T said the deal would add to earnings per share in the first year after closing. It said it expects $1 billion in annual run-rate cost savings within three years of closing, chiefly driven by lower corporate and procurement spending.

5G is coming

Owning more content gives cable and telecom companies bargaining leverage with other content companies as customers demand smaller, hand-picked cable offerings or switch to watching online. New mobile technology including next-generation 5G networks could make a content tie-up especially attractive for wireless providers.

"We think 5G mobile is coming, we think 5G mobile is an epic game-changer," Rich Tullo, director of research at Albert Fried & Co, said in a research note, adding that mobile providers would be in position to disrupt traditional pay-TV services.

A previous Time Warner blockbuster deal, its 2000 merger with AOL, is now considered one of the most ill-advised corporate marriages on record.

Perella Weinberg Partners LP, Bank of America Corp and JPMorgan Chase & Co were financial advisers to AT&T, with Bank of America and JPMorgan also offering bridge financing, while Sullivan & Cromwell LLP and Arnold & Porter LLP provided legal advice.

Allen & Co LLC, Citigroup and Morgan Stanley acted as financial advisers to Time Warner, while Cravath, Swaine & Moore LLP was its legal adviser.

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