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AT&T : U.S. Threatens to Derail AT&T Deal -- WSJ

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11/09/2017 | 08:47am CET

Antitrust regulators are pressing AT&T to sell either DirecTV or TV unit including CNN

By Keach Hagey, Brent Kendall and Drew FitzGerald 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 9, 2017).

U.S. antitrust regulators are pressing for major changes to AT&T Inc.'s proposed takeover of Time Warner Inc., demands that threaten one of the biggest media deals ever, people familiar with the matter said.

The Justice Department has raised the prospect that the telecom giant would have to divest either the Turner television unit, which includes CNN along with other cable channels, or the satellite DirecTV business, the people said.

The two sides have engaged in recent tense settlement discussions to address the agency's concerns about the transaction, which would put CNN, HBO and the Warner Bros. film studio under the same corporate roof as satellite broadcaster DirecTV and more than 100 million wireless users.

AT&T and the Justice Department are far apart, and people involved in the discussions have differing views on the exchange of proposals. AT&T offered to sell the CNN business, but the agency rejected the idea, one person close to the negotiations said. AT&T denied it offered to sell the news network, which President Donald Trump has criticized as unfair to him.

In a statement Wednesday, AT&T CEO Randall Stephenson said, "Throughout this process, I have never offered to sell CNN and have no intention of doing so."

Rather than a major divestment, AT&T is preparing to fight any potential legal challenge in court, arguing the opposition is politically motivated since there is no overlap between the two companies' business lines, some of the people said.

The Justice Department's recently confirmed antitrust chief, Makan Delrahim, has pledged that politics wouldn't play a role in enforcement decisions.

"The department is committed to carrying out its duties in accordance with the laws and the facts," a spokesman said, declining to comment further on the investigation.

The agency is laying the groundwork for a possible lawsuit to stop the deal while at the same time negotiating with company executives, The Wall Street Journal reported last week.

A top AT&T executive had warned for the first time earlier Wednesday that the company was unsure about the timing of the takeover, which was valued at $85 billion when it was struck last year.

"The timing of the closing of the deal is now uncertain," John Stephens, AT&T's chief financial officer, said Wednesday at a Wells Fargo conference in New York. Just a few weeks ago, he told investors the company still expected the transaction to close later this year.

Shares of Time Warner fell 6% to $88.50 on Wednesday, while AT&T shares rose 1% to $33.44. AT&T shares have fallen sharply in recent weeks and Time Warner shares are trading at a wide discount to the implied offer price, as investors worry about the deal.

The review reached a new level in recent weeks with the involvement of Mr. Delrahim, who received Senate confirmation in late September. Mr. Trump nominated Mr. Delrahim in April, but Senate delays in his confirmation left him on the sidelines while others in the Justice Department scrutinized the transaction.

Mr. Delrahim is a critic of so-called behavioral remedies to address concerns about a merger, preferring that companies be required to sell off assets instead, a view he signaled last month in a public appearance at New York University. Antitrust observers took notice of the remarks and have wondered whether his views would make it harder for AT&T to offer concessions that the companies and the Justice Department would each find acceptable.

During his presidential campaign, Mr. Trump had attacked the proposed deal. "AT&T is buying Time Warner, and thus CNN, a deal we will not approve in my administration because it's too much concentration of power in the hands of too few," he said. Mr. Trump has since avoided talking publicly about the transaction but frequently complained on Twitter about the way CNN has reported on him. CNN stood by its reporting.

AT&T executives previously pledged not to sell CNN or interfere with its editorial operations. The Dallas-based telecom giant is looking for the deal to give it a bigger foray into advertising and new growth markets, as it struggles with increased competition in the mature wireless business and shrinking pay-TV market, especially in the DirecTV satellite service it bought in 2015.

For Time Warner, the deal with AT&T is the culmination of years of moves by Chief Executive Jeff Bewkes, who spun off underperforming assets, leaving a media and entertainment-focused firm that was more appealing to an acquirer. Mr. Bewkes has argued that uniting content and distribution will help meet viewers' demands for more flexibility in the TV packages they buy and where they view content, with more video being watched on mobile devices.

As the media industry evolves, even giant companies are looking to adapt. Rival Walt Disney Co. recently held talks to buy studios and other entertainment assets from 21st Century Fox Inc., seeking to gain more leverage in negotiations with distributors or to have more content for its own direct to consumer services. Wall Street Journal parent company News Corp and 21st Century Fox share common ownership.

AT&T argues the deal would help consumers by making film and TV more affordable. AT&T points to its current moves to lower prices for video content, such as offering discounts for DirecTV Now, an online pay-TV service.

"Vertical mergers like this one have always been approved because they benefit consumers without removing any competitors from the market," AT&T said last week. "We see no reason in the law or the facts why this transaction should be an exception."

Several competitors including the Lions Gate Entertainment Corp.'s premium programming service Starz, which competes with Time Warner's HBO, and rival satellite broadcaster Dish Network Corp. have raised concerns about the deal, people familiar with the matter said.

If the Justice Department were to sue to block the deal, that wouldn't be the end of the matter unless the companies abandoned their plans. The department would have to present its case to a federal judge and prove that the deal would likely harm competition.

Such court battles remain rare, as the government and merging parties often find ways to settle their differences. There were, however, several major merger trials during the Obama era of antitrust enforcement, including two recent cases in which the Justice Department won rulings against a pair of major proposed deals in the health insurance industry.

The government over the past decade has won most of its merger cases, but not all of them. For example, the Federal Trade Commission, which shares antitrust authority, in 2015 lost a case in which it challenged Steris Corp.'s deal to buy Synergy Health PLC.

--Joe Flint and Thomas Gryta contributed to this article.

Write to Keach Hagey at [email protected], Brent Kendall at [email protected] and Drew FitzGerald at [email protected]

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Sales 2017 160 B
EBIT 2017 28 214 M
Net income 2017 13 750 M
Debt 2017 114 B
Yield 2017 5,71%
P/E ratio 2017 15,18
P/E ratio 2018 13,96
EV / Sales 2017 2,03x
EV / Sales 2018 2,00x
Capitalization 212 B
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