AT&T continues Time Warner merger following lawsuit victory
In October 2016, at the cusp of one of the most contentious U.S. presidential elections, AT&T Inc. announced its plans to acquire Time Warner Inc. — the world’s largest film and TV studio with assets such as HBO, CNN and Cartoon Network — in a stock-and-cash transaction worth almost $109 billion.
Almost immediately, the deal drew flak from then-presidential candidate Donald Trump, who said at a Gettysburg, Pennsylvania, rally that he would not approve the deal “because it’s too much concentration of power in the hands of too few.”
Opposing presidential candidate Hillary Clinton was a bit more reserved and took a wait-and-watch approach.
As promised on the campaign trail, Trump’s trustbusters at the U.S. Department of Justice sued AT&T to block the deal. In what has been the first nail-biting vertical merger trial in more than 40 years since the Justice Department sued Hammermill Paper Co. in 1977, AT&T prevailed in the court on June 12, clearing the path for its Time Warner acquisition.
U.S. District Court Judge Richard J. Leon — one of the more colorful personalities on the bench well-known for his love of bow ties and pencils — derided the government’s case. The government said that the merger would harm competition and result in higher prices for consumers. Leon quashed this argument when he stated that Time Warner’s networks and programming are not a must-have for consumers, an argument seeped in evidence from previous vertical mergers in the industry and the rise of online streaming services like Netflix, YouTube and Hulu.
Last month, Netflix surpassed Comcast Corp. in market value on the heels of better-than-expected subscriber growth. The rise of cord cutters — consumers who forgo expensive cable TV for online streaming services — has propelled Netflix’s value by more than 10 times in the past five years while the traditional media industry has mostly languished.
The new age media threat and the mobile-first reality have forced traditional media companies to consolidate, leading to heightened mergers and acquisitions activity in the space along with a windfall from Trump’s historic tax cuts of 2017.
No wonder that the technology, media and telecommunications, also known as the TMT industry, has been the most active sector in the first quarter of 2018, with 244 deals according to PricewaterhouseCoopers.
As the news of AT&T’s landmark ruling spread like wildfire on June 12, it quelled the fears of further government intervention and unleashed animal spirits in the stock market. Time Warner’s stock gained 6 percent aftermarket, but still lingered below AT&T’s offer of $107.50 per share, while AT&T stock fell as much as 4 percent.
Twenty-First Century Fox gained more than 7 percent, as it is also the target of Disney and Comcast’s overtures. CBS Corp. rose more than 3 percent while its sister company, Viacom, rose 4 percent on speculations that the two companies might rekindle their lost love and merge. Discovery, which owns a stable of brands like Discovery Channel, Animal Planet, HGTV and others, spiked up 4 percent, while Netflix closed up more than 3 percent the next day.
The global mergers and acquisitions activity for the first quarter, generally considered slow by historic standards, blew past $1 trillion in 2018, the highest on record since 2001.
Large deals with a value of more than $5 billion doubled from 20 to 39 from a year ago. In the United States alone, $5 billion deals doubled from 8 to 16 percent — constituting 40 percent of all global deals of that size.
Since Trump’s election, the American stock market has risen more than 28 percent, adding $7 trillion in value. This is more than the size of world’s third-largest economy, Japan, which hovers at around $5 trillion. This increase in the value of American companies has compelled them to use their stock as currency in mergers and acquisitions in addition to cash.
So far, the markets have shrugged off the risks of a trade war and rising interest rates on the heels of full throttle gross domestic product growth, record-low unemployment and the normalization of North Korean relationships with no end in sight to this M&A euphoria.