Mergers & Acquisitions

AT&T takeover of Time Warner will create a fierce competitor for Chinese firms

The US$85.4 billion deal would create a new media juggernaut, but first it must pass the scrutiny of US regulators

PUBLISHED : Sunday, 23 October, 2016, 2:50pm
UPDATED : Sunday, 23 October, 2016, 11:23pm

AT&T’s US$85.4 billion takeover of entertainment giant Time Warner faces a potentially rocky path to getting approval from Washington, according to analysts.

The deal, which would turn AT&T into a media giant, is certain to come under unprecedented scrutiny by regulators, no matter what the outcome of the November 8 presidential election. Both the Democratic and Republican presidential nominees have expressed their reservations about blockbuster mergers, with Donald Trump specifically condemning the AT&T deal as placing “too much concentration of power in the hands of too few.”

But it’s not just American media companies who have something to fear from such a sizable consolidation in the sector.

Such a mega deal can translate into intensifying competition for Chinese conglomerates like Wanda
Huang Guofeng, Analysys

The mega merger, if it does get the green light from regulators, would create a formidable competitor for Chinese companies like Dalian Wanda Group, according to analysts. Dalian Wanda, owned by billionaire Wang Jianlin, has been on its own buying spree in recent years, snapping up America’s biggest cinema operator AMC and European theatre giant Odeon.

“Such a mega deal can translate into intensifying competition for Chinese conglomerates like Wanda that have a global ambition in media and film business,” Huang Guofeng, a telecommunications, media and technology (TMT) analyst with Beijing-based consultancy Analysys told the South China Morning Post on Sunday.

“Time Warner operates an array of online and brick-and-mortar media businesses, and the merger between it and AT&T will enhance their penetration all across the board in the US, which then will add some pressure for aspiring new comers like Wanda.”

AT&T on Saturday said it had agreed to buy Time Warner for US$85.4 billion, forming a telecommunications and media empire that will own many of the movies and TV shows it pumps through to subscribers of its wireless, internet and pay-TV services.

The cash-and-stock deal values Time Warner at about $107.50 a share, the companies said on Saturday in a statement, 20 per cent more than Friday’s closing price. Time Warner shareholders are to receive $53.75 per share in cash and $53.75 a share in AT&T stock.

By combining they will be able to compete nationwide with cable companies by bundling mobile broadband and video, according to the two companies.

If the companies can persuade regulators that that is the case, it might improve the odds of approval with conditions, said Amanda Wait, an antitrust lawyer at Hunton & Williams LLP in Washington.

Still, AT&T will receive close scrutiny from regulators, lawmakers and state attorneys general, she said. “This is going to be a multifront war,” she said.

Time Warner holds an airwaves license for a TV station in Atlanta, potentially giving the Federal Communications Commission (FCC ) power over the deal in a review that wouldn’t happen until after the November 8 presidential election.

Hillary Clinton, the Democratic nominee for president, holds a significant lead in the polls as the election approaches and has been critical of megamergers. But even her opponent, Donald Trump, broke with Republican orthodoxy on Saturday by saying he would block the Time Warner acquisition, arguing that such deals leave too much power concentrated among too few companies. He also suggested he would favour a breakup of Comcast and NBC.

Analysys’s Huang said the deal signalled that media assets like Time Warner were becoming increasingly sought after by technology giants.

“Time Warner also runs cinemas, and after the deal it may benefit from AT&T mobile data and internet strength, that will also put certain pressure on Wanda as it sets its sights upon the US market with AMC,” he said.

But Kitty Fok, the managing director of IDC China, does not believe the deal will make much of a difference to the major Chinese internet companies.

“While the likes of Alibaba Group, Tencent Holdings and LeEco see the entertainment industry as an important means to expand their businesses globally, these companies are not looking for that type of large-scale investment,” said Fok.

New York-listed Alibaba, which owns the South China Morning Post, has been ratcheting up its co-investment deals in overseas movie projects through Hong Kong-listed subsidiary Alibaba Pictures.

In April, Alibaba Pictures said it had co-invested in two new productions under Hollywood studio Paramount Pictures – Teenage Mutant Ninja Turtles: Out of the Shadows and Star Trek Beyond – following their successful partnership in Mission Impossible – Rogue Nation, a global box office hit released last year.