Verizon, T-Mobile US and Sprint do not have a strong content business that AT&T will build with the acquisition of Time Warner. AT&T wants to sell video content on subscription basis to its wireless customers in the US and Latin America.
Time Warner shareholders will own between 14.4 percent and 15.7 percent of AT&T shares.
AT&T expects $1 billion in annual run rate cost synergies within 3 years of the deal. The cost synergies are primarily driven by corporate and procurement expenditures. In addition, AT&T expects to achieve incremental revenue.
By the end of the first year after close, AT&T expects net debt to adjusted EBITDA to be in the 2.5x range.
AT&T expects the deal to improve its revenue and earnings growth profile.
Why content business?
Time Warner’s business requires little in capital expenditures, which helps balance the higher capital intensity of AT&T’s existing business. AT&T has been looking at reducing its Capex in both wireless and wireline business by adding the software driven networks.
AT&T did not reveal the savings on Capex following the closure of the Time Warner deal. AT&T in the third quarter of 2016 made capital investment of $5.9 billion, while Capex was $16.2 billion in the nine months.
AT&T has generated $15 billion ($15.1 billion) revenue from US wireless, $12.7 billion ($12.6 billion) from entertainment business and $17.8 billion ($17.7 billion) from business solutions in Q3 2016. The revenue mix indicates that AT&T need content business to growth revenue further and reduce reliance on pure wireless business.
What Time Warner offers to AT&T?
Time Warner will represent about 15 percent of the combined company’s revenues. Time Warner owns a majority stake in HBO Latin America, an OTT service available in 24 countries, and AT&T is the leading pay TV distributor in Latin America.
The video shows presentation by Randall Stephenson, AT&T chairman and CEO on the Time Warner deal.
Time Warner’s business requires little in capital expenditures, which helps balance the higher capital intensity of AT&T’s existing business.
Time Warner’s business is lightly regulated compared to much of AT&T’s existing operations.
AT&T to reveal $86 bn Time Warner deal on Monday
AT&T-Time Warner will have the world’s best premium content with the networks to deliver it to every screen. AT&T will build its business utilizing the demand for customers for video on mobile phones and tablets.
Randall Stephenson, AT&T chairman and CEO, said: “A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that.”
The combined company will compete with cable companies providing bundled mobile broadband and video. It will disrupt the traditional entertainment model and push the boundaries on mobile content availability.
Meanwhile, AT&T revenues rose 4.6 percent to $40.9 billion in Q3 2016, thanks to the $48.9 billion acquisition of DIRECTV last year. Operating income of AT&T increased 8.2 percent, while net income rose 11.2 percent.
Baburajan K
editor@telecomlead.com