Is AT&T (T) Eyeing Time Warner to Enter Media Industry?
According to a recent report by Bloomberg, U.S. telecom and pay-TV behemoth AT&T Inc. T is currently engaged in informal talks with media giant Time Warner Inc. TWX to evaluate various business strategies including a possible merger. Per the report, neither side has hired a financial adviser as of yet. Further, both the companies have refrained from making any comments regarding the issue.
For the last couple of months, industry circle has been ripe with the rumor that AT&T is looking to venture into the media and entertainment industry as a diversification strategy. As prospects in the wireless industry are growing bleak due to a saturated market, telecom players are looking to boost revenues through the adoption of different strategies. Although business services solutions has been gaining momentum, some cash rich telecom companies are looking for further diversification.
AT&T’s closest competitor Verizon Communications Inc. VZ is systematically diversifying in Internet TV and digital advertisement platform. While leading cable MSO (multi service operator) Comcast Corp. CMCSA has become a media mogul after its acquisition of NBC Universal. Last year, AT&T also forayed into the pay-TV market in a big way after its acquisition of the largest satellite TV operator DIRECTV. The company will launch its online TV service DIRECTV Now OTT apps by the end of this year.
Acquiring Time Warner would give AT&T a collection of popular programming to offer to subscribers, which ranges from HBO to NBA basketball to the Cartoon Network. Additionally, Time Warner’s portfolio consists of the CNN news network, film studio Warner Brothers and other vital media assets. Both AT&T and Time Warner Cable currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
As AT&T operates as a pay-TV operator as well, investing in media and content programming will allow it to achieve backward integrated synergies, mostly by reduction of cost to deliver content to subscribers. However, such a move will not be easy as the company doesn’t possess the required cash to expand a newly created media division. Thus, it has to raise more debt for foraying into the media space. However, with a net debt at the end of second quarter of 2016, piling up further debt may arouse fear among investors.
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