A Deal Too Many?

AT&T to sell Warner Media to Discovery for $43billion

I guess the decision by AT&T to sell Warner Media to Discovery for $43billion represents a sobering lesson to all corporations when making an acquisition.

It’s so very easy to get carried away with the adrenalin rush when purchasing a business. Even more worrying can be the sky riding confidence that follows a successful acquisition; take for instance the RBS purchase of NatWest that led to the disastrous acquisition of ABM Amro.

Until 2020 AT&T was headed by Randall Stephenson. I know little of Mr Stephenson, other than to observe he sure liked doing deals. According to Bloomberg he spent his 13 year stint as boss of AT&T compiling a colour-coded book index of the companies that he wanted to buy; and he bought 43!

And what looks like the deal too many was when he went for Time Warner. His strategy was to strengthen AT&T’s position in the telecoms sector. By owning Warner, which incorporated the streaming service HBO Max, the logic was that it would reach across to its mobile and broadband customers.

Stephenson had already bought DirecTV, a pay TV business for $50 billion in 2015 and he followed this up in 2018 by paying a staggering $85billion for Time Warner. And the deal did not come easily – Donald Trump who hated Time Warner’s news service CNN put up every block possible to scupper the deal and likewise the Department of Justice. Anyhow – be careful what you wish for – Stephenson got Time Warner, but woke up the next day with a debt burden of $180 billion. AT&T failed to integrate the media assets of Time Warner.

So the new Head of AT&T, John Stankey has made what must be a very tough, if not embarrassing decision to spin off Time Warner for $43billion. AT&T Shareholders will own 71% of the enlarged company, but the Discovery boss, David Zaslav will head up and run the Group. In addition to the existing Discovery media stable including Eurosport, Animal Planet, the Food Network and Nature Channel, Zaslav will now be in charge of Warner Bros Film Studio, HBO, HBO Max, the Turner Channels and a whole host of streaming services.

For the past few years the streaming giants have been in race to sign up subscribers-Netflix has collected 207 million and Disney is fast coming up the track with 104 million. This leaves HBO Max and Discovery way down the pecking order with a modest 25 million subscribers.

All in all the empire building strategy of Stephenson looks a financial disaster. Stankey has already sold 30% of DirecTV for around a third of the $50billion purchase price, whilst the AT&T shares are currently trading a third lower than when they bought Time Warner

Sometimes the dream of crossing over one sector with another can produce fabulous results, but it would appear telco and media assets do not mix well. However, going forward there is good news for the industry; the new group, named Warner Discovery has indicated it will be spending $20billion on content, even more than the Netflix budget of $17billion.

Let’s hope some of that significant investment finds its way to into the UK.

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