AT&T and Time Warner: a new home for Harry Potter

US telecoms giant AT&T wants to buy entertainment conglomerate Time Warner. Investors and regulators may balk, says Ben Judge.

For media companies, bigger is usually seento be better, says Amie Tsang in The New York Times. That certainly seems to be the thinking behind US telecoms giant AT&T's $85bn bid to buy media conglomerate Time Warner a deal that could "reshape the entire media landscape in the United States".It would give AT&T, which in 2015 acquired satellite broadcaster DirecTV, control of HBO and CNN, plus Warner Brothers, the home of the Harry Potter films. It's a curious union, coming as it does after the "colossal failure" of Time Warner's previous merger with AOL, which chief executive Jeffrey Bewkes has "spent the last decade dismantling", says The New York Times's Andrew Ross Sorkin. But AT&T believes it can make it work.

Until now, AT&T "has merely functioned as a conduit" for the type of content Time Warner puts out, says Tara Lachapelle on Bloomberg. If it wants to retain pricing power and some semblance of growth, it needs "skin in the game". AT&T hopes that buying Time Warner will "help it succeed in the future world of media consumption", says Miriam Gottfried in The Wall Street Journal. The deal is AT&T's "second major bet in as many years on beefing up its exposure to the pay-TV ecosystem". But there is no guarantee that the future world of pay TV will be as lucrative as it has been in the past, says Gottfried, which could "erode the value of AT&T's purchases".

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And unless the future is very different from AT&T's present, it will be hard for the company to justify the price of the deal. It would also make AT&T "among the most heavily indebted companies on earth" , says Ryan Knutson in The New York Times. It already has $119bn in net debts; to finance the deal, it plans to add another $40bn. There are external hurdles to overcome, too, as Matthew Garrahan notes in the Financial Times. "AT&T faces an uphill battle to convince US regulators" that the deal "will not unfairly distort the media and communications industries". And it's not just regulators. The deal "looks set to be one of the first and biggest tests of the next president's antitrust policy" and neither candidate looks well disposed towards it. Donald Trump, famously hostile towards the media, called it "an example of the power structure I'm fighting", denouncing it as "a deal we would not approve" because it would mean "too much concentration of power in the hands of too few". A spokesman for Hillary Clinton, quoted on CBS News, said that the deal raises "a number of questions and concerns".

To justify its purchase to investors, says Gottfried, "AT&T needs a Hollywood ending". That may be a long way off the firm's shares fell by over 6% early this week.

IPO watch

The float comes at time when new listings in London have almost dried up: IPO activity this year is at its lowest in four years, according to fund manager Henderson. The value of new listings in the third quarter is down by 42% at £948m, compared with the previous year.