What the AT&T–Time Warner Deal Means for Other Media Players

AT&T to acquire Time Warner

On October 22, 2016, AT&T (T) announced that it would acquire Time Warner (TWX) for $107.50 per share, or $53.75 per share in cash and $53.75 per share in AT&T stock. The stock portion is subject to a collar. 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, and it represents ~12.0x analysts’ adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) estimate for 2017.

Time Warner’s purchase price was at a 36% premium to its pre-takeover trading price. The cash portion will be financed with cash on hand and new debt, with AT&T receiving an 18-month, $40 billion commitment for an unsecured bridge term facility.

What the AT&T–Time Warner Deal Means for Other Media Players

Acquisition expected to close by end of 2017

Randall Stephenson, AT&T’s chair and CEO, stated in the company’s October 24, 2016, press release, “The merger is subject to approval by Time Warner Inc. shareholders and review by the U.S. Department of Justice. AT&T and Time Warner are currently determining which FCC licenses, if any, will be transferred to AT&T in connection with the transaction. To the extent that one or more licenses are to be transferred, those transfers are subject to FCC review. The transaction is expected to close before year-end 2017.”

Competition in the wireless and media space is growing. For this reason, Verizon (VZ) may look to acquire other assets beyond AOL-Yahoo, while Comcast (CMCSA) and Charter (CHTR) could look at a wireless strategy more closely. This could position T-Mobile (TMUS), Sprint (S), and Dish (DISH) as attractive takeovers.

AT&T has agreed to pay a $500 million breakup fee if the deal is blocked by regulators, while Time Warner has agreed to pay a $1.7 billion breakup fee if it terminates the transaction.

In the next article of this series, we’ll discuss the impact of the Time Warner acquisition on AT&T.