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Time Warner : Tensions Ease on Media Deal -- WSJ

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11/10/2017 | 08:48am CET
By Drew FitzGerald and Brent Kendall 

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 10, 2017).

A day after disagreements between AT&T Inc. and the U.S. government over the company's proposed takeover of Time Warner Inc. spilled out into the open, both sides tried to mute tensions that threatened to mar negotiations.

AT&T Chief Executive Randall Stephenson said Thursday he had no reason to believe that antitrust enforcers' examination of the deal was influenced by President Donald Trump, who has criticized Time Warner's CNN as unfair to him. Mr. Stephenson also said AT&T would continue to work toward a negotiated settlement.

Meanwhile, a government official close to the negotiations said the Justice Department believed there were many ways to resolve its concerns, and that a sale of Time Warner's Turner television unit or of AT&T's DirecTV weren't the only options.

After a long antitrust review, people familiar with the matter have said, the agency recently raised the prospect that the telecom giant would have to divest either the Turner unit, which includes CNN and other cable networks, or the satellite DirecTV business that AT&T bought two years ago.

The government official close to the negotiations said no final decision has been made and that the department was in ongoing conversations with the companies.

Mr. Stephenson also said Thursday he wouldn't shed a major business to win government approval of the takeover and that he was ready to take the fight to court.

"We are prepared to litigate now" if the companies cannot reach a negotiated settlement with the Justice Department, Mr. Stephenson said at the DealBook business conference Thursday in New York.

AT&T has argued the roughly $80 billion cash-and-stock deal shouldn't raise competitive concerns, while consumer advocates as well as some lawmakers and media rivals have disagreed. A letter from 11 Democratic senators to Attorney General Jeff Sessions in June said the deal would give AT&T "unmatched control of popular content and the distribution of that content," which could lead to higher prices and few choices for American consumers.

AT&T's critics also have said the telecom company would have incentive to favor Time Warner content over programming from other entertainment companies, and that AT&T could gain bargaining leverage when negotiating carriage fees for Time Warner channels with other pay-TV providers, including Comcast and Dish Network.

On Thursday, Mr. Stephenson didn't address any specific legal concerns the government raised with him but criticized the idea that a bigger AT&T could hurt media competition, saying it "borders on comical."

"Concentration of power is the least problem of this industry," he said, pointing to technology giants like Netflix, Amazon.com, Google and Facebook that have invested heavily in entertainment and advertising.

The Justice Department's final AT&T decision will fall heavily on Makan Delrahim, the new head of the department's antitrust division. Before his confirmation in September, Mr. Delrahim was a deputy White House counsel, a role in which he focused on the president's slate of conservative judicial nominees.

He previously worked in the Justice Department's antitrust division during the George W. Bush administration and is well-known in antitrust circles, where he is viewed as a conservative who would favor lighter government intervention on some issues.

After the Time Warner deal was reached last fall, Mr. Delrahim, who at the time was still in private practice, said he didn't think the merger raised jor antitrust concerns. "Just the sheer size of it, and the fact that it's media, I think will get a lot of attention. However, I don't see this as a major antitrust problem," he said in a television interview.

In the same interview, he said the deal could raise "some concerns and antitrust issues of one distributor owning various content, and it might somehow impact other distributors."

Shares of Time Warner fell 1.6% to $87.05 in Thursday's trading, while AT&T gained nearly 2% to $34. Both stocks have dropped sharply in recent weeks amid concerns about both the health of the pay-TV business and the fate of the transaction.

Peeling off a large part of either company could threaten a strategy that AT&T executives have pieced together over several years. The company paid $49 billion to acquire DirecTV and its 20 million subscribers. Last year, it offered $85 billion for Time Warner, counting on the idea that a combination of entertainment, internet and wireless assets could keep customers hooked on its services.

Mr. Stephenson said he doesn't plan on selling CNN and that no one in the Justice Department had made that a condition of approving the deal. "I have never been told that the price of getting deal done was selling CNN," Mr. Stephenson said. "I have never offered to sell and have no intentions to sell CNN."

The AT&T chief also dispelled the idea that he might agree to shed some larger division of Time Warner. "It's illogical," Mr. Stephenson said, saying media properties like Turner's cable channels and HBO are why the company struck the deal in the first place.

If the standoff were to turn into a court case, Mr. Stephenson said he was confident in the company's legal position and that the litigation could be concluded by April 22, a new deadline the merger partners put on the transaction.

Such court cases are rare, though the Justice Department recently won rulings against a pair of mergers of health-insurance rivals. Unlike those deals, AT&T and Time Warner don't have overlapping businesses. The Justice Department hasn't challenged many mergers that combine complementary companies at different links in the same supply chain.

The department, however, almost challenged such a deal last year in the semiconductor industry. The would-be merging parties, Lam Research Corp. and KLA-Tencor Corp., abandoned their merger plans after Justice Department antitrust officials raised objections.

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

Corrections & Amplifications Randall Stephenson is AT&T's CEO. An earlier version of this article in one reference incorrectly referred to him as Mr. Stephens.

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Financials ($)
Sales 2017 31 036 M
EBIT 2017 8 109 M
Net income 2017 4 952 M
Debt 2017 19 928 M
Yield 2017 1,85%
P/E ratio 2017 14,09
P/E ratio 2018 13,59
EV / Sales 2017 2,87x
EV / Sales 2018 2,72x
Capitalization 69 077 M
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Mean consensus HOLD
Number of Analysts 27
Average target price 104 $
Spread / Average Target 17%
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Jeffrey L. Bewkes Chairman & Chief Executive Officer
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Mitchell A. Klaif Chief Information Officer & Senior Vice President
Robert Charles Clark Lead Independent Director
Jessica P. Einhorn Independent Director
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