AT&T first announced its cash-and-stock acquisition of Time Warner on October 22, 2016. As part of their definitive agreement, AT&T would acquire Time Warner for $85.4 billion and assume the company's debt obligations for $23.3 billion, corresponding to a total amount of the transaction of $108.7 billion. Time Warner shareholders were issued up to $101.73 per share by AT&T.The initial per share agreement was $107.50 per share, but fluctuations in AT&T's share price led to the collar mechanism being used, which lowered the final pricing to $101.73 per share. The deal between the two companies was structured as a tax-free vertical merger.Shareholders were issued exactly 1.437 of AT&T common stock and $53.75 in cash components for every share of Time Warner owned.
At the time of the merger's announcement, AT&T was the world's largest telecommunications company, and the biggest pay TV distributor in the United States after completing its purchase of DirecTV. Wanting to diversify into entertainment, AT&T began considering several M&A deals before finalizing its agreement with Time Warner. To finance the transaction, AT&T signed a $40 billion unsecured bridge loan with Bank of America and JPMorgan. Early reactions to the proposed deal were mostly negative, as many advocacy groups, regulatory agencies, and politicians voiced concerns about the merger. Criticism centered on the level of market concentration AT&T would gain and whether it would raise subscription fees or withhold content from competitors. This led the Justice Department to sue AT&T on November 20, 2017, in what would become the first federal attempt to break apart a vertical merger in nearly 40 years.
United States V. AT&T was often described as the "Antitrust Trial of the Century" and lasted for six weeks from March to June 2018. The U.S. District Judge Richard J. Leon oversaw the trial and ruled on June 12, 2018, that the Department of Justice (DOJ) had failed to provide substantial evidence of how the merger would impact consumers. The merger closed on June 14, 2018, with Time Warner being privately reorganized into AT&T as WarnerMedia, LLC. The DOJ continued its legal battle with AT&T until 2019, when the Circuit Courts upheld Judge Leon's ruling. AT&T's involvement with entertainment only lasted a few years, as it began unwinding its participating interests in media to bring down debt. By May 17, 2021, an agreement was reached with Discovery, Inc. to spin off WarnerMedia and have it merged to form Warner Bros. Discovery through a Reverse Morris Trust, with the transaction closing on April 8, 2022.
Background
AT&T's historical outline
The first company to bear the name "AT&T" was founded on March 5, 1885, when the American Bell Company established the American Telephone and Telegraph Company (later renamed AT&T Corporation) to develop the first long-distance telephone network. Due to existing Massachusetts corporate law, American Bell merged into AT&T on December 30, 1899, making AT&T the new corporate parent of Western Electric, the Bell System, and various international properties. Under the leadership of Theodore Newton Vail, AT&T adopted the motto of "One Policy, One System, Universal Service," which came to define the company's early history. In the early 1900s, AT&T grew by acquiring dozens of telephone companies and blocking competitors from connecting to its long-distance network. The U.S. Department of Justice tried to break apart AT&T through the Sherman Antitrust Act but later reached a settlement through the Kingsbury Commitment in 1913, helping AT&T avoid being federally broken up like Standard Oil and the American Tobacco Company. The Willis Graham Act of 1921 guaranteed AT&T as a federally regulated, natural monopoly.
By 1932, AT&T controlled over 80% of telephone operations in the United States, and by the mid-20th Century, AT&T was the world's largest telecommunications company, with a market capitalization exceeding that of General Motors and IBM. AT&T's unrivaled dominance in telephone operations led to it often being nicknamed "Ma Bell." On November 20, 1974, the Department of Justice sued AT&T for antitrust violations and accused the company of violating the Sherman Antitrust Act and monopolizing telecommunications service within the United States. Defendants of the suit included AT&T, Western Electric and Bell Laboratories. The case cited AT&T with more than $67 billion in assets, supplying over 80% of telephone equipment, and handling over 90% of interstate telephone calls. The court trial lasted for nearly eight years and required AT&T to seek a divestiture of either its long-lines division or the Bell System. On January 8, 1982, AT&T reached a settlement to have the Bell System be separated into seven regional operating companies while Western Electric and Bell Laboratories were consolidated into AT&T Technologies. These changes took effect on January 1, 1984, resulting in an altered telecommunications landscape.
After the breakup, AT&T ventured into computing by acquiring NCR Corporation in 1991 but later spun it off in 1996. Wanting stronger positions in cellular connectivity and cable operations, AT&T purchased MediaOne, McCaw Cellular Communications, and Tele-Communications between 1994 and 2000. Heavy debt from these acquisitions led to the spinoff of AT&T Wireless Services and AT&T Broadband as separate companies. With its future uncertain, AT&T was acquired on November 18, 2005, by SBC Communications, one of its former Baby Bell companies. SBC emerged in 1984 as the smallest Baby Bell and expanded rapidly due to relaxed telecom regulations from the 1996 Telecom Act, which allowed it to acquire several Baby Bells. After merging with AT&T Corporation, SBC adopted the AT&T name and reincorporated as AT&T Inc. Following its 2006 acquisition of BellSouth, AT&T reunited four of the seven Baby Bells and gained full control of Cingular Wireless. After Edward Whitacre Jr. retired in June 2007, Randall Stephenson became AT&T's CEO and chairman. In his first year as CEO, AT&T's U-Verse platform—a triple-play bundle offering IP television, high-speed internet, and VoIP home phone service reached one million subscribers. AT&T also secured the first carrier deal for Apple's original iPhone, which increased customers at AT&T Mobility.
Time Warner's corporate outline
Time Warner began its operations on January 10, 1990, from the merger between Time Inc. and Warner Communications. Henry Luce and Briton Hadden co-founded Time Inc. on November 22, 1922, and the namesake Time magazine began publishing in 1923. As Time Inc. grew, it launched or acquired dozens of magazine titles, such as People, Life, and Sports Illustrated. By the mid-1960s, Time Inc. was the largest magazine company, and it held interests in book publishing and paper manufacturing. Time spearheaded the launch of HBO in 1972, which pioneered premium television. Warner Communications was established on December 26, 1961, as Kinney Service Co., the holding company for tertiary businesses, such as the Riverside Memorial Chapels and Kinney Parking System. Steven Ross was the company's CEO and Chairman, and he led the conglomerate's push into entertainment through the acquisitions of National Periodical Publications and Warner Bros-Seven Arts in the late 1960s. Kinney Services' reincorporated as Warner Communications on February 10, 1972, while its non-core businesses became National Kinney Corp.
Warner Communications formed Warner Cable in 1973 and launched the Warner-Amex joint venture with American Express. A multitude of cable networks were formed, but financial losses led to the business being sold to Gulf+Western in 1985. After several rounds of merger discussions, Time Inc. and Warner Communications entered into a stock-swap merger on March 4, 1989, to form the world's largest media conglomerate. Paramount Communications, the successor to Gulf+Western, contested the merger and attempted a hostile takeover of Time Inc. After being rejected, Paramount sued Time to block the merger, but the Delaware Courts ruled in Time's favor and allowed the merger to close. After the merger concluded in January 1990, Steve Ross and Nicholas J Nicholas became the Co-CEOs of Time Warner. Immediate issues facing the company were its high debt burden. To address this, a limited partnership named Time Warner Entertainment was created in 1992. Partners in the venture included Toshiba and US West. After Nicholas Jr. resigned in May 1992 and Steve Ross died later that year, Gerald Levin, a longtime Time Inc. executive, assumed the roles of Chairman and CEO.
During Levin's ten-year tenure as CEO, Time Warner oversaw the acquisition of the Atlanta-based Turner Broadcasting System, which added a variety of new assets to the company. These properties included New Line Cinema, Castle Rock Entertainment, and cable networks like CNN and TBS. A transformative event in Time Warner's history was its unsuccessful merger with America Online, which later became infamous for becoming one of the worst business mergers in history. AOL Time Warner, as the company was called, was supposed to be a combination of traditional and digital media, but the expected synergies between both companies failed to materialize. Challenges facing the conglomerate were the collapse of the dot-com bubble, corporate culture clashes, and heavy losses. Over $200 billion in shareholder value was erased and by January 2003, AOL Time Warner announced an annual loss of nearly $100 billion. On October 16, 2003, AOL Time Warner was officially renamed back to Time Warner and the AOL subsidiary was spun off as an independent company on December 9, 2009, bringing an end to one of the most tumultuous mergers in history.
Acquisition developments
Prelude and early negotiations Jeff Bewkes succeeded Dick Parsons as Time Warner's CEO and chairman in 2008 and he aimed to restore investor confidence in Time Warner's stagnant stock price through spinning off Time Warner Cable and AOL. Once the divestitures were completed, Time Warner's nearly 18-year run as the world's largest media conglomerate came to an end. On September 28, 2010, Bewkes was interviewed by The Daily Telegraph, and he referred to the AOL Time Warner merger as the "biggest mistake in corporate history." On December 12, 2010, Jeff Bewkes commented on Netflix during an interview with The New York Times and he dismissed the streaming company as a fading star, equating its disruption to traditional media companies as being that of the Albanian Land Forces, jokingly saying, "Is the Albanian army going to take over the world soon?"Within 15 years, Netflix would announce an initial merger agreement with Warner Bros. Discovery. Once AT&T's exclusive wireless deal with Apple ended in 2011, rival competitors like Verizon and Sprint quickly began attracting mobile customers. Wanting to grow its market share in the wireless market, AT&T reached a deal to acquire T-Mobile USA from Deutsche Telekom, but the proposed merger faced heavy opposition and was ultimately blocked by the U.S. Department of Justice.