The US telecommunications company AT&T is reported to be close to an agreement to acquire Time Warner, the parent of CNN and HBO and a host of other properties, in an $86-billion deal that would create a media behemoth offering TV, wireless and the content that goes with it.
The bid values Time Warner at about $110 a share, about 23% more than where it closed on Friday, said sources familiar with the proposal. If accepted, it would be the biggest acquisition of the year, surpassing the $66-billion takeover of Monsanto by Bayer in May.
Buying Time Warner would give AT&T premium entertainment programming including HBO and the Cartoon Network, which it could offer its millions of pay-TV, mobile and internet subscribers.
AT&T CEO Randall Stephenson has been trying to transform the phone company into a media and entertainment giant, and now has one of Hollywood’s top film and TV producers in his cross-hairs.
“It is a knockout bid, which is probably what AT&T intended,” said Jonathan Chaplin, an analyst at New Street Research. “I would be surprised if anyone else could top AT&T’s bid.”
AT&T is pushing to clinch the blockbuster deal to close the door on other potential bidders, another source said on Friday. An agreement could be approved Sunday and announced as soon as Monday, according to the people familiar with the matter.
Time Warner and AT&T over the decades have survived the shift to talking movies, colour TV and cable, and are now looking at a way to adapt to the latest technological shifts: smartphones and streaming.
More consumers are getting their entertainment online from Netflix and watching on iPhones instead of TV sets. That’s putting pressure on traditional entertainment companies and pay-TV providers. For many, it’s no longer enough just to make TV shows or own a cable company.
“You need to do both,” said Chris Marangi, co-chief investment officer at Gamco Investors Inc, which owns stock in both companies.
That logic is driving AT&T’s effort to buy Time Warner as two storied companies respond to changes reshaping the entertainment industry.
Pay-TV distributors like AT&T, the parent of DirecTV, are trying to prevent subscribers from dropping their services for cheaper online alternatives. They aim to own content that they can offer wherever consumers want, whether it’s streamed to mobile phones or broadcast on TV.
AT&T’s chief rival, Verizon Communications, has sized up in the challenge in a different way, opting for original programming designed specifically to be viewed on smartphones for its mobile video service, Go90. Verizon has also been buying up companies including AOL and Yahoo to become a player in the mobile advertising market.
Time Warner is a rich target for AT&T. The media company has a vast library of movies and television series, such as the Harry Potter films and Game of Thrones, and is among Hollywood’s most prolific producers. Its annual revenue totals $28 billion.
AT&T’s interest “demonstrates the embedded value of media content in distribution platforms,” said Steven Cahall, an analyst at RBC Capital Markets.
The same industry pressures may explain Time Warner’s willingness to sell -- two years after rejecting a buyout offer from 21st Century Fox Inc. Time Warner, Walt Disney Co and competitors such Viacom are all confronting similar threats: falling TV ratings as consumers drop or pare their cable-TV subscriptions for online alternatives.
The pay-TV distributors have been combining as well, building negotiating leverage to rein in the price increases that media companies seek for their TV networks.
“Time Warner is saying maybe there are limits to what they can do as a standalone entity,” said Marangi. A deal between the company and AT&T “could be the match that gets consolidation going on the content side", he added.