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AT&T : Timing of AT&T-Time Warner Deal Closing 'Now Uncertain' -- 2nd Update

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11/08/2017 | 11:22pm CEST
By Keach Hagey, Brent Kendall and Drew FitzGerald 

U.S. antitrust regulators are pressing for major changes to AT&T Inc.'s proposed takeover of Time Warner Inc., demands that threaten to derail 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, some of the people said.

The two sides have engaged in recent tense settlement discussions to address the agency's concerns about the transaction, which has been under review for about a year. The two sides 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 department rejected the idea, said one person close to the negotiations. 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 familiar with the matter said.

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

The deal would turn the giant telephone company into one of the world's biggest media owners, putting CNN, HBO and the Warner Bros. film studio under the same corporate roof as satellite broadcaster DirecTV and more than 100 million wireless users.

The Justice Department 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. The two sides have been in discussions for months and aren't close to an agreement, the Journal reported.

"I can't comment on those discussions, but with those discussions, I can now say that 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.

A Justice Department spokesman didn't immediately respond to a request for comment.

The review reached a new level in recent weeks after the Senate in late September confirmed Makan Delrahim to lead the Justice Department's antitrust division. President Donald Trump nominated Mr. Delrahim in April, but the Senate moved slowly on his confirmation, leaving him on the sidelines while other Justice Department antitrust staffers scrutinized the transaction. Mr. Delrahim is now involved in the deliberations, people familiar with the matter said.

Mr. Delrahim isn't a big supporter of using so-called behavioral remedies to address concerns about a merger, as he stated 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 the Justice Department would find acceptable.

AT&T 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.

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.

Shares of Time Warner fell 2.9% to $91.94 in Wednesday afternoon trading, while AT&T shares slipped 0.6% to $32.88. 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.

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

Write to Keach Hagey at keach.hagey@wsj.com, Brent Kendall at brent.kendall@wsj.com and Drew FitzGerald at andrew.fitzgerald@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
AT&T 2.11% 34.17 Delayed Quote.-13.99%
TIME WARNER 0.00%-End-of-day quote.7.98%
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Financials ($)
Sales 2018 173 B
EBIT 2018 32 531 M
Net income 2018 20 430 M
Debt 2018 170 B
Yield 2018 5,98%
P/E ratio 2018 11,47
P/E ratio 2019 11,46
EV / Sales 2018 2,38x
EV / Sales 2019 2,17x
Capitalization 243 B
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Technical analysis trends AT&T
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus HOLD
Number of Analysts 29
Average target price 35,0 $
Spread / Average Target 4,8%
EPS Revisions
Randall L. Stephenson Chairman, President & Chief Executive Officer
John J. Stephens CFO, Principal Accounting Officer & Senior EVP
Joyce M. Roché Independent Director
Laura D'Andrea Tyson Independent Director
Matthew K. Rose Lead Independent Director
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