AT&T Reaches Deal to Buy Time Warner for $86 Billion

AT&T Reaches Deal to Buy Time Warner for $86 Billion

AT&T Inc. has reached an agreement to buy Time Warner Inc. for $86 billion, according to a person familiar with the plans, in a deal that would transform the phone company into a media giant.

The wireless carrier agreed to pay $107.50 a share, the person said. The deal is half cash and half stock, according to people familiar with the transaction.

AT&T Chief Executive Randall Stephenson will head the new company and Time Warner Chief Executive Jeff Bewkes will leave after an interim period following the deal, the person said.

The deal is expected to be announced Saturday evening, the people said.

The acquisition will put telecom veteran Mr. Stephenson, 56 years old, atop a business that combines the carrier’s millions of wireless and pay-television subscribers with Time Warner’s deep media lineup including networks such as CNN, TNT, the prized HBO channel and Warner Bros. film and TV studio.

For Time Warner, the deal represents a victory for Mr. Bewkes, 64, who took some heat from investors for rebuffing a takeover bid two years ago from 21st Century Fox at $85 a share. (21st Century Fox and Wall Street Journal-owner News Corp share common ownership.)

For AT&T, the deal will help the carrier potentially find new areas of growth as its core wireless business has become saturated and its market share leaves little room for acquisitions. For Time Warner, the tie-up comes amid pressure for media companies to bulk up or join with larger entities in the face of consolidation among pay-TV distributors and viewers increasingly leaving their expensive cable packages for cheaper online streaming options.

A merger of the companies would be the most ambitious marriage of content and distribution in the media and telecom industries sinceComcast Corp.’s purchase of NBCUniversal and would create a behemoth to rival that cable giant. A rigorous regulatory review is expected and the acquisition of Time Warner likely wouldn’t close until late 2017, people close to the process said.

Regulators have indicated misgivings about the prior Comcast-NBCU deal—in particular, whether obligations placed on Comcast were tough enough and enforceable—so it is unclear if they will be willing to bless another such merger. At the very least, former regulatory officials say there could be significant conditions placed on the combination. Republican presidential nominee Donald Trump said his administration wouldn’t approve a proposed mergerof AT&T and Time Warner because he opposes further consolidation in the media industry.

The transaction would be far and away the biggest media deal of recent years, potentially breathing new life into media deal-making. Time Warner had a market capitalization of $68 billion before the Journal reported on the advanced talks Friday, while AT&T’s was $233 billion.

On Friday, Time Warner shares closed at $89.48, up 8%, while AT&T fell 3%, to $37.49.

AT&T has been shifting its sights to media and video in recent years, diving deeper into television after its nearly $50 billion deal to acquire satellite television provider DirecTV last year. That made AT&T, which traces its roots to the old ‘Ma Bell, the country’s biggest pay television provider as well as its second-largest wireless operator.

Time Warner “is the last scaled content play that’s acquirable,” saidMichael Nathanson, an analyst at MoffettNathanson, noting that the rest of the major media companies are either so valuable they would be difficult to acquire, such as Walt Disney Co., or family controlled, such as 21st Century Fox, CBS Corp. and Viacom Inc. “HBO, Turner and Warner Bros. are really good assets for a future of nonlinear consumption.”

The sale represents a strategic departure for Mr. Bewkes, who spent his nearly nine years as CEO slimming down the onetime media behemoth, unwinding the AOL merger and spinning out Time Warner Cable and Time Inc. The three businesses that remained—HBO, Turner Broadcasting and Warner Bros.—are focused solely on video content. In lieu of acquisitions, Mr. Bewkes focused on containing costs and buying back stock.

A cerebral Stanford M.B.A. known for his financial acumen, Mr. Bewkes’s strategy was influenced in part by scars from the disastrous AOL-Time Warner merger, which left shareholders in the combined company—including employees such as Mr. Bewkes—in a lurch after AOL’s business collapsed.

Much has changed in the media landscape since the AOL-Time Warner marriage unraveled, Mr. Bewkes spun off Time Warner Cable and even since he rebuffed Fox’s takeover offer.

For Mr. Bewkes, selling now could turn out to be a shrewd bet, given the uncertainty of the media business. Cord-cutting has so far only been a relatively minor drag on industry results. It is the threat of future disruption that is the most potent overhang on media stocks, and it is unclear when the pace of change will accelerate.

Read more from The Wall Street Journal here.

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