AT&T to buy Time Warner in media-shaking $85.4B deal

The telecom giant will shake up the media world by acquiring one of the most coveted entertainment companies, home to HBO and "Game of Thrones."

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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Roger Cheng
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Who will win the "Game of Thrones"? It may just be AT&T.

The massively popular show, the HBO channel it runs on and a host of other entertainment properties including CNN, Cartoon Network and movie studios Warner Bros. and New Line Cinema -- all part of Time Warner -- will join the telecommunications giant as part of a $85.4 billion deal that ranks among the biggest acquisitions of all time.

AT&T confirmed it would acquire Time Warner in a half-stock, half-cash deal that values its shares at $107.50 apiece. The companies said they expect the transaction, which was buzzed about for the last three days, to be completed by the end of 2017.

On Friday, Time Warner's shares closed at $89.48 each, while AT&T's closed at $37.49.

The deal marks the next step in an audacious plan by AT&T to control several key aspects of your life. With Time Warner in the fold, AT&T could theoretically serve you wireless and home internet service through its traditional business, deliver satellite TV via DirecTV and produce many of the television shows and films you watch.

"We can deliver a very different experience for our customers," AT&T CEO Randall Stephenson said in a conference call with reporters.

For Time Warner, the deal answers the pressures that media companies have felt to consolidate. Rupert Murdoch 's 21st Century Fox had previously sought to buy Time Warner two years ago. CEO Jeff Bewkes said on the same call that AT&T gives his business extra heft to change how video is distributed.

"This will supercharge our creative abilities," he said.

But consumer advocates warn that the deal could lead to higher prices down the line. Sen. Al Franken (D-Minn.) said the proposed deal raises "immediate flags" about consolidation in the market.

The combination of a service provider and a media company brings to mind Comcast 's acquisition of a controlling stake in NBC Universal in 2011 (it completed the takeover two years later). Comcast may have been in mind when these two companies started talking.

"AT&T's most formidable challenge in coming years will come from Comcast," said New Street Research analyst Jonathan Chaplin in a note that came out before the deal was officially announced. "The cable companies are already pressuring AT&T in broadband, pay-TV and enterprise markets, and wireless will be next."

The deal also harkens back to AOL 's $165 billion takeover of Time Warner.

But AT&T is hoping history doesn't repeat itself -- that combination proved to be one of the worst in history.

DirecTV has become a core part of AT&T's business.

DirecTV has become a core part of AT&T's business.

Karen Bleier/Getty Images

AT&T doubles down on video

Wireless leaders Verizon and AT&T have both looked to media as a new opportunity as their core business slows, thanks in part to smaller rivals T-Mobile and Sprint picking away at their customers.

But where Verizon has opted for a more conservative approach, scooping up a past-its-prime AOL for $4.4 billion and the wounded Yahoo for $4.83 billion, AT&T has bet much bigger.

Last year, AT&T spent $49 billion to acquire DirecTV and become the nation's largest pay-TV provider. How does it follow that up? With something even bigger.

Time Warner will likely play a critical role in AT&T's plan to greatly expand how it delivers video. Beyond its traditional U-Verse TV and DirecTV services, the company is set to launch an online streaming service called DirecTV Now that caters to cord cutters, or people who don't pay for a cable TV subscription. The company has spent the last year striking content deals with media companies for its service.

That streaming service is one way AT&T wants to ensure that younger consumers will still flow its way. A study by research firm Parks Associates found that nearly a quarter of millennial households just subscribe to broadband and an over-the-top video service like Netflix.

Time Warner immediately gives AT&T a wealth of content, including the prized HBO premium channel, which boasts " Game of Thrones ," "Silicon Valley" and "Veep" as hit shows. On the cinematic side, Warner Bros. is home to the "Harry Potter" franchise and DC films like "Batman v Superman: Dawn of Justice."

AT&T also gets the DC cinematic universe, including "Batman v Superman: Dawn of Justice" (for better or worse).

AT&T also gets the DC cinematic universe, including "Batman v Superman: Dawn of Justice" (for better or worse).

Warner Bros.

A hit to your wallet?

Not everyone is enamored with the deal. Critics were out early, issuing statements before the official word arrived. Most expressed concern about the further concentration of power in the media business, with AT&T both controlling the production and distribution of entertainment.

"As the (Federal Communications Commission) has found in past mergers, combining valuable content with pay-TV distribution causes harm to consumers and competition in the pay-TV market," Matthew Polka, CEO of the American Cable Association, said in a statement Saturday.

Others warned that these types of deals could have a real impact on your cable bill.

"Any time you hear media executives talking about synergies, throwing around the business-babble that always accompanies these rumors, you know it's time to grab your wallet and hang on tight," said Matt Wood, policy director for consumer advocacy group Free Press.

AT&T will have a lot to juggle. Beyond DirecTV and Time Warner, the company has invested more than $4 billion combined to buy Nextel Mexico and Iusacell to expand its wireless service south of the border.

It's also unclear whether regulators will like the deal. One of AT&T's biggest flops was the failed takeover of rival T-Mobile, which hit a wall with regulators. Republican nominee Donald Trump said Saturday that he would kill the AT&T-Time Warner merger if he were president.

Stephenson dismissed any concern that the deal would fall through, noting "this is not the T-Mobile deal."

"No competitor will be removed from the marketplace with this deal," he said on a call, noting that two similar companies aren't combining.

The US government also heavily scrutinized the Comcast-NBC Universal merger, but it ultimately approved that deal.

AT&T can only hope regulators give it the same nod.

First published October 22, 4:51 p.m. PT.
Update, 5:53 p.m.:
Adds comments from the CEOs of AT&T and Time Warner.