Coaxial TV Cables are seen in front of AT&T and Time Warner logos in this picture illustration taken June 13, 2018. REUTERS/Dado Ruvic/Illustration
AT&T’s (T.N) purchase of Time Warner in 2018, which spliced together telecommunications and TV programming, was an example of looney-tunes logic. Chief Executive John Stankey has a chance to try and put it right. A possible combination of AT&T’s media assets with Discovery (DISCA.O) could give the U.S. telecom group focus, and let Stankey distance himself from past mistakes – including his own.
The talks first reported by Bloomberg on Sunday would see the $230 billion AT&T merge its WarnerMedia properties, which include streaming service HBO Max, film studio Warner Bros and cable networks like CNN, with the $17 billion reality-TV empire. AT&T would presumably remain in charge of the new outfit.
A bit of separation would show AT&T is rethinking its transformation into a modern media company. For all the $109 billion AT&T spent buying Time Warner, Walt Disney (DIS.N), Netflix (NFLX.O) and Alphabet’s (GOOGL.O) YouTube have put its streaming efforts in the shade. HBO Max, launched in May 2020, is just a fraction of its rivals’ size even with over 60 million customers. Meanwhile, AT&T has racked up massive debts of over $160 billion, not helped by a $23 billion purchase of wireless spectrum from the U.S. government in March to aid its 5G network build-out.
AT&T’s carve-out of satellite business DirecTV, with help from buyout firm TPG, serves as a prequel. AT&T is the majority shareholder, but the satellite-pay TV service runs at arms’ length from its parent. Discovery too has an encouraging precedent: When it bought Scripps Networks Interactive in 2018 the two envisioned savings of 3% of their combined revenue. In a WarnerMedia deal, the same yardstick would mean around $1 billion a year of savings, or around $9 billion, taxed and capitalized.
Whatever the eventual details, investors ought to be forgiving of anything that tries to undo the value destruction AT&T has inflicted on them so far. Since announcing the Time Warner acquisition in 2016, the company’s total shareholder return is just is 13%, compared with 49% at Verizon Communications (VZ.N). If AT&T had matched its rival, it would have added more than $110 billion in market value and dividends rather than the $30 billion shareholders actually saw.
For Stankey, it’s a form of atonement. While new as AT&T’s CEO, he previously ran DirecTV and Time Warner, which means he’s partly responsible for the company’s poor record of dealmaking. But unwinding a foolhardy transaction is still a commendably bold thing to do.
Follow @jennifersaba on Twitter
CONTEXT NEWS
- AT&T is in talks to combine its film and television business with Discovery, Bloomberg reported on May 16, citing people with knowledge of the matter.
- The U.S. telecommunications group owns streaming service HBO Max, cable news network CNN and other properties through its WarnerMedia division, which it acquired through a $109 billion merger with Time Warner in 2018.
- Discovery runs reality-TV programming on channels including Animal Planet, HGTV and the Discovery Channel.
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