AT&T Shocks the World With Time Warner Deal

When AT&T (NYSE: T) reported it had reached a deal to acquire Time Warner (NYSE: TWX), the move sent shockwaves through the distribution and content industries.

In this segment ofIndustry Focus: Consumer, host Vincent Shen is joined by Fool contributor Daniel Kline to discuss the megadeal. The pair go through exactly why AT&T would want Time Warner and the parameters of the merger agreement.

In addition, Vince shares some numbers from both companies while Dan weighs in on whom the deal will be good for (and whom it won't). The two also discuss exactly what AT&T would be getting and how the transaction would affect consumers.

A full transcript follows the video.

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This podcast was recorded on Oct. 25, 2016.

Vincent Shen: Our story for today, without further ado, is the proposed merger between telecom and entertainment giants AT&T and Time Warner. This is about an $85 billion deal, and if you include Time Warner's debt balance, it balloons over $100 billion. It has dominated headlines over the weekend and early into this week. To give listeners who aren't as familiar -- I think you've all heard the names -- with the businesses, I wanted to give you a bit of an idea of the scale and the scope, and what this deal really brings together in terms of their assets and what each company has to offer.

First, we have AT&T. Over $200 billion market cap. Their trailing-12-month revenue is $164 billion, net earnings of about $14.5 billion. They have over 25 million video subscribers to the largest pay-TV player worldwide. They have over 12 million Internet and broadband subscribers, over 40 million wireless subscribers, making them second only toVerizon, and they have a network coverage in the U.S. of 350 million people, pretty much anyone out there. You can add to that another 20 million wireless and video subscribers in Mexico and Latin America.

On the Time Warner side, you have a company with about a $60 billion market cap, at least prior to the deal's news. Trailing-12-month revenue of $20 billion. Net earnings of $4 billion for that same period. They have three major segments: Turner, which includes networks like TNT, TBS, Cartoon Network, Adult Swim, CNN, all their affiliated digital properties, which are becoming bigger and bigger, and all those networks reach at least 90 million domestic television households. HBO has grown its subscriber base over the years with tons of famous, very popular content. ThinkGame of Thrones, Silicon Valley,the newWestworld,which I have been watching and really enjoying. They have over 130 million subscribers worldwide. Warner Brothers is the last segment. It's the largest TV and film studio in the world. They produce a ton of popular TV series, like 60 different TV series. I think they're the No. 3 video game publisher for last year. Their movies, you know some of the famous franchises, including the DC Comics universe,Harry Potter, Lord of the Rings, tons of major franchises, huge names for Time Warner and the Warner Brothers Studio.

So that is the potential here for everything that's coming together. It's a ton of properties in a ton of assets. What do you think?

Dan Kline:To put this into perspective, this is a giant distribution company buying a giant content company -- a premium content company. It's really a case of, AT&T has the pipeline. You mentioned video subscribers. Most of that is DirecTV. They purchased DirecTV fairly recently. So this is all about giving them the premium content, which they can use to justify, let's say, price increases, or keeping prices the same. It's really a way to control both sides of the transaction. I'm not a shareholder, but for shareholders of either company, I don't love the deal, partially because there's not a lot of history of distribution companies understanding content.

Look at HBO. HBO, sure they have blockbuster shows, but they also make very smart, very niche deals. Bill Simmons would be an example I would give. He has a show,Any Given Wednesday. He has a bunch of digital platforms with them and without them. But there's a couple million people who he means a lot to. When you're just a corporate AT&T guy used to subscriber revenue and balance sheets, a deal like that doesn't make sense. It makes me very nervous as a fan of a lot of content put out on the Time Warner side, for AT&T running the show.

Daniel Kline has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool recommends Time Warner and Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.