AT&T and Time Warner executives tried to ease investor fears of a regulatory stiff-arm to the $108.7 billion deal, driving shares of the content company down 3% in the first day of trading since the deal was officially announced.
Time Warner shares have been on the rise since Thursday when news first surfaced that it was in talks with AT&T about a possible merger. But after the deal was officially announced Saturday night, investors apparently had time to think about the intense regulatory scrutiny the deal will face.
Time Warner shares finished the day at $86.74 per share, down 3.1% or $2.74 each and far below the $107.50 per share AT&T has agreed to pay.
Several legislators have already said that the deal should be looked at closely, adding their uneasiness with concentrating so much media power in one company. U.S. Sen. Al Franken (D-Minn.), a sharp critic of the last big vertically integrated media deal – Comcast-NBC Universal – said AT&T-Time Warner should receive the “highest level” of scrutiny from regulators. He wasn’t the only one to express some concern about the deal. Public interest groups like the Common Cause, Public Knowledge and others have come out against the merger, fearful that its sheer size would be a “dangerous” consolidation of content and distribution power. Sen. Bernie Sanders (I-Vt.), who lost the Democratic presidential nomination to Hillary Clinton, tweeted that the deal would mean “higher prices and fewer choices” for consumers.
AT&T chairman and CEO Randall Stephenson and Time Warner chairman and CEO Jeff Bewkes made the rounds of the morning business shows touting the benefits of the deal. In a conference call with analysts, Stephenson said other large deals have been blocked by regulators because they took a competitor out of the market. This deal doesn’t do that. Any issues regulators may have with the combination could be addressed through conditions imposed by those bodies, Stephenson said on a conference call with analysts.
Several analysts have criticized the deal, adding that vertical integration rarely works out. Comcast-NBC Universal has been a success mainly because Comcast bought a massively underperforming asset at a low price. For example, before Comcast bought it, the NBC broadcast network had $0 of retransmission consent revenue, this year, it expects to tally about $800 million in retrans revenue.
Stephenson argued that the way the business is changing – consumers want to send video clips via messaging and social media and make their content consumption more mobile – it makes more sense to own the rights to that content already. And he said once AT&T does more innovative things with Time Warner content along those lines, other content providers will want to participate too.
He added that he and Bewkes are “convinced as we innovate in this way and as we accelerate the pace of this innovation, it’s going to attract others to want to do the same on these platforms.”
Still, investors are nervous. AT&T put out a statement Monday from senior executive vice president and general counsel David McAtee specifically in response to inquiries directed to its investor relations department.
“We look forward to discussing the many benefits of this transaction with our regulators,” McAtee said in the statement. “In the modern history of the media and the Internet, the U.S. government has always approved vertical mergers like ours, because they benefit consumers, strengthen competition, and, in our case, encourage innovation and investment.”