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This report describes the situation around the merger of two famous companies: AT&T and Time Warner. AT&T is an American telecommunications holding. Time Warner is one of the largest American mass media companies. The boards of directors of both companies made an agreement for which AT&T acquired Time Warner. The main goals of this paper are to analyze the acquisition event and determine its effect on share price.
AT&T was formed at the end of 19th century as a telephone company. It successfully performed almost a hundred years. However, in 1984, several regional departments separated from AT&T and became individual companies (“Company Overview”). Therefore, AT&T had to deal with competitors. The most famous were MCI, Sprint, and Southwestern Bell. The later initiated a series of acquisitions, and soon this company changed its name to SBC Communications. It became one of the largest communications companies in the United States. After more than a hundred years of operating, AT&T merged with SBC Communications Inc. However, the company kept its name.
Time Warner began its history as the Time magazine in 1923. In the 1970’s, Kinney National Company changed its name to Warner Communications Inc. Two big companies, Warner Bros. Pictures and Warner Music Group, operated under the Warner Communications Inc. holding (“About Us.”). At the end of 1980’s, Warner Communications united with Time Inc. In 1990, due to the lawsuit, the restructuring of the holding resulted in the new company’s name Time Warner.
The main reasons for such transformations that both these companies underwent were the fast development of communication technologies and strong competition occurred consequently. Small companies joined bigger ones to achieve more efficiency and become more resilient in such fast-changing circumstances. These two companies developed in a similar manner. AT&T and Time Warner performed incompatible areas. AT&T provided customers with high-quality modern communication devices, and Time Warner filled them with the media content. This consolidation will present millions of clients the access to all necessary information via communication devices for much lower prices.
It is a merger of two giant databases. The Time Warner’s contribution is the “vast library of content and ability to create new premium content that connects with audiences around the world” (“AT&T to Acquire”). It is a famous and widespread system. On the other hand, AT&T provides the “world’s largest pay TV subscriber and leading scale in TV, mobile and broadband distribution” (“AT&T to Acquire”). Hence, their merger is a logical continuation of the existing trends.
To fully analyze this deal, it is necessary to review certain figures. The definitive agreement states that AT&T acquired Time Warner Inc. for more than $80 billion (“AT&T to Acquire”). However, this purchase has to be approved by Time Warner shareholders. They “will own between 14,4% and 15,7% of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding” (“AT&T to Acquire”).
This event has a direct effect on share prices as they have increased by more than 30% for a month. The main trading strategy of the company is to obtain “$1 billion in annual run-rate cost synergies within three years of the deal closing” (“AT&T to Acquire”). Also, the company intends to use incremental revenue opportunities that it will not obtain without the assistance of Time Warner.
In conclusion, the merger of these companies will have short-term and long-term outcomes. Prices on their services should fall in the long run. Also, the quality of their products should increase due to the combining of two big databases. In the short term, the range of the products should become wider as the companies will adopt each other’s technologies.
“AT&T to Acquire Time Warner.” TimeWarner. 2016. Web.
“About Us.” TimeWarner. Web.
“Company Overview.” AT&T. Web.