Rationale behind the Time Warner deal
During AT&T’s (T) 4Q16 earnings conference call, AT&T’s management stated that they continue to believe that after a difficult regulatory review process, it will successfully complete its acquisition of Time Warner (TWX) by the end of calendar 2017.
In 2016, AT&T announced a definitive agreement to acquire Time Warner in a stock-and-cash transaction valued at $107.50 per Time Warner share. Time Warner has high-quality content assets, and AT&T has extensive customer relationships across wireless, video, and fixed broadband platforms.
The AT&T-Time Warner deal would create a vertically integrated company with “best in class” assets in content and distribution that could help grow AT&T’s long-term earnings. But the proposed transaction is subject to approval by Time Warner shareholders, regulatory restrictions, and other customary closing conditions.
Creating new revenue streams
The graph above shows AT&T’s revenue over the past five quarters. AT&T reported revenue of $41.8 billion in 4Q16. The acquisition of Time Warner is seen as another attempt by AT&T to pursue revenue growth outside its traditional carrier business, where competition has become more intense.
Smaller carriers T-Mobile (TMUS) and Sprint (S) have stepped up competition for subscribers with aggressive pricing techniques. However, a Trump presidency could frustrate the company’s revenue diversification efforts.
Time Warner’s Trump problem
Notably, Donald Trump is still opposed to AT&T’s intended takeover of Time Warner, according to Bloomberg (citing people close to Trump). It’s believed that Trump thinks the deal will lead to too much concentration in the media industry. During the 2016 election, Trump stated at a rally that if elected President, he would be reluctant to approve of the acquisition.
Notably, Time Warner has a relationship problem with Trump because it owns CNN, which Trump has repeatedly accused of unfair coverage during his presidential campaign, even going as far as to call the established news outlet “fake news” more than once since he took office in January 2017.