Profile
AT&T
In mid-2018, it was made official that American Telephone & Telegraph Company (AT&T) would be acquiring Time Warner Inc. Each share of Time Warner stock was acquired by AT&T for $53.75 billion in cash plus 1.437 common shares. AT&T is a Texas-based, American global telecommunications holding company that provides mobile phone service to more people than any other firm in the United States and ranks third globally in revenue.
With average yearly revenues of $130 billion and gross profit of $70 billion, AT&T ranked number eleven on the Fortune 500 list of the most prominent American firms in 2021 (Popiel, 2022). In the same year, AT&T’s operating income was $25.8 billion, and the company had a net profit margin of 11.9% (Popiel, 2022). From 2003 through 2022, the corporation expects a yearly revenue increase of 198.14% (Popiel, 2022). AT&T dominated the telecommunications service in the US for the better part of the twentieth century. The company’s origins may be traced back to 1878 when it was incorporated in St. Louis as the US District Telegraph Company.
Time Warner
Time Warner offers a wide variety of bundled services and products. The company was called Time Warner after a merger between Time Corporation and the old Warner Communications in 1990. New York City-based media and entertainment giant Warner Media, a limited liability company, was a global corporation. The annual income of Time Warner Cable Enterprises, LLC is $7,000,000. Approximately 100 people worked for Time Warner Company, each bringing in $70,000 in profit (Neff, 2020). Revenue for media conglomerate WarnerMedia dropped to $30.40 billion in 2020 from $33.50 billion the year before (Neff, 2020). The business had branched out into the movie industry, TV, and cable.
AT&T did not provide statistics from later years since they did not apply after the company’s acquisition and rebranding of Time Warner (to WarnerMedia). WarnerMedia’s overall revenue increased by 15.4 percent to $9.9 billion while the company’s profit margins were 76 percent on sales, 18 percent on operations, and 7.80 percent on net income (Bumgardner, 2019). AT&T’s working capital was $233 billion at the acquisition point, while Time Warner’s was $68 billion (Bumgardner, 2019). Time Warner boasted strong growth in direct-to-consumer subscriptions and increases in content licensing fees.
Case Analysis
Workforce Impact and Cost Synergies Post-Merger
About 280,000 people were employed by AT&T and Time Warner before the acquisition was finalized. By the end of September 2018, with the acquisition complete, AT&T had an average of 269,280 workers, suggesting that 10,720 people had lost their jobs because of the merger (Carlton, Giozov, Israel, & Shampine, 2022). Several positions were eliminated as part of the company’s post-acquisition human capital strategy.
AT&T anticipated yearly established rate cost synergies of $1 billion within the first three years after the merger’s finalization. Corporate and procurement costs were the primary drivers of the anticipated savings. Over time, AT&T also expected to gain access to new sources of revenue that it would have needed to have operated independently.
Corporate Backgrounds and Rationale for Consolidation
AT&T is recognized as a prominent telecommunications corporation on a global scale; indeed, the company initiated the construction of telephones. Conversely, Time Warner was a major entity within the media industry, possessing significant media outlets such as HBO and CNN. These organizations were of considerable size and scale within their respective industries. This implies that the consolidation of the two businesses would result in the formation of a substantial corporate entity.
Legal Challenges and Antitrust Concerns
The obstruction of this merger by numerous individuals can be attributed to this rationale. The merger between the telecommunications corporation AT&T and entertainment conglomerate Time Warner was announced in 2016 (Underwood, 2019). The consolidation in question was met with an antitrust lawsuit filed by the United States Department of Justice.
Furthermore, the agreement faced opposition from the former American President, Donald Trump. During his tenure as a Presidential candidate, he was queried regarding his perspectives on this agreement. Trump emphatically stated that implementing this agreement would result in significant consolidation of power among a select few individuals.
Concerns were raised regarding the potential negative impact on customers resulting from the union between AT&T and Time Warner. Initially, there was concern regarding the potential risk of fostering exclusivity (Kuntz, 2022). Both competitors and consumers raised concerns regarding the possible utilization of Time Warner’s programming as a bargaining tool by AT&T. For instance, DirecTV may prefer to utilize Time Warner content while declining to offer alternative options or stand-alone programming that may be more desirable to the audience. This entails imposing restrictions on the accessibility of the programming service, thereby diminishing the appeal of other products.
Moreover, there were claims that the consolidation of AT&T and Time Warner had the potential to manipulate prices to steer customers toward their respective platforms. This policy can exempt Time Warner materials from data caps imposed on its broadband systems. Consumers have raised concerns regarding the issue of privacy, specifically about AT&T’s ability to protect their data, given the company’s efforts to expand its user tracking across multiple screens and platforms.
The prevailing sentiment among the public opposed the AT&T and Time Warner large-scale transactions. Nevertheless, AT&T and Time Warner provided a rationale for this merger. They asserted that the amalgamation was an unavoidable course of action to establish a unified entity capable of effectively competing with corporations such as Netflix and Google. Consequently, a fiercely disputed legal case ensued between the Department of Justice (DOJ) and these large-scale corporations; the outcome is that the court approved the merger (Herzog & Scerbinina, 2021). DOJ expressed its commitment to persist in its efforts; nevertheless, it could not impede these two corporations’ $109 billion consolidation.
DOJ contended that the merger between AT&T and Time Warner was anticipated to have a significantly adverse impact on the remaining participants within the industry. This was attributed to the nature of the merger, which can be classified as vertical (Shapiro, 2021). Through the acquisition of Time Warner, AT&T gained significant control over a substantial segment of the media supply network. Consequently, AT&T posed significant challenges for its competitors, such as Comcast. For example, Time Warner previously sold television shows and other forms of content to AT&T and other rival entities. Nevertheless, a potential scenario exists where Time Warner may bestow AT&T with the exclusive privilege to distribute said content. This has a detrimental impact on the sustainability of the competitors’ business. Over time, the newly formed entity will likely attempt to eliminate competition before the onset of monopolistic practices that could result in price increases.
Following the election of Donald Trump as the President of the United States, the Justice Department under his administration initiated legal proceedings opposing AT&T and Time Warner to impede the proposed merger. The legal case was brought before Judge Leon and was heard in a United States District Court in Washington, DC, in June 2018 (Gupta & Jha, 2023). Judge Leon ruled in favor of AT&T and Time Warner after a trial lasting six weeks, granting permission to complete their merger.
On June 15, 2018, AT&T announced its acquisition of Time Warner. The legal proceedings reached a temporary resolution for a short duration of two months. However, this state of affairs changed when the DOJ challenged the American District Court ruling in August 2018.
Individuals representing AT&T, Time Warner, and the DOJ presented their arguments before a three-member panel of judges in the Washington, DC, Court of Appeals. To clarify, the merger had already been executed. This implies that the DOJ requested the Washington, DC, Court of Appeals to reverse the merger of the two companies, thereby undoing their combined operations.
The initiation of a lawsuit and subsequent appeal by the DOJ represented a notable occurrence, as it signified the first instance in several decades where the United States government was involved in a merger. Nevertheless, the amalgamation of a successful merger would entail the fusion of a prominent global wireless and telecommunications corporation with a renowned multinational media and entertainment conglomerate (Martin, 2022). The antitrust grounds prompted the United States Justice Department to challenge the merger, leading to a court case in which the government ultimately failed, resulting in the merger’s approval.
A conflict arose between pessimistic forecasts regarding the potential consequences of permitting the merger to proceed and assertions advocating the substantial societal benefits that would inevitably result. The primary objective of the AT&T-Time Warner merger was to integrate broadband and wireless complexes, which encompassed DirecTV’s possession, with Time Warner’s content portfolio consisting of HBO Television. At a more profound level, the concept entailed leveraging AT&T’s extensive customer database to gain insights into individuals’ engagement with television programs (McDonnell, 2022). This enabled the company to guide content providers in producing more appealing arrangements.
The primary focus of the antitrust concern pertained to the ‘vertical’ merger. The prevailing understanding among individuals was predominantly centered on the concept of a ‘horizontal’ merger, wherein two companies engaged in the sale of comparable products unite. Hence, in the event of a merger between the two firms, assuming the absence of a diverse range of competitors in the market, the resultant merged firm may be able to increase prices (Shapiro, 2021).
However, in the context of a vertical merger, it can be observed that one company, namely Time Warner, was supplying a particular input to another company, AT&T. The primary antitrust concern associated with this merger is the potential reduction in competition if one firm gains exclusive control over a critical input. The articulation of concerns regarding diminished competitiveness posed a more significant challenge in the context of a vertical merger. Notably, the AT&T-Time Warner merger marked the initial instance in the past four decades where antitrust authorities engaged in litigation about a vertical merger.
Merger Outcome and Subsequent Divestiture
The merger of AT&T proved to be a situation in which its advocates’ optimistic forecasts and its critics’ pessimistic outlooks did not fully materialize. Approximately three years after the acquisition, AT&T decided to divest itself from the entertainment industry (Martin, 2022). This was accomplished by announcing its proposal to transfer possession of WarnerMedia and combine it with Discovery, Inc., establishing a novel publicly traded entity known as Warner Bros. Discovery.
AT&T divested its Warner Media resources and relinquished managerial authority to Discovery. Warner Bros. Discovery assumed a substantial debt of $43 billion from AT&T, while AT&T shareholders retained a majority ownership of 71 percent in the company, valued at less than $20 billion (Martin, 2022). Despite being announced in 2016 and receiving court approval for the merger in 2018, the subsequent divestiture of Time Warner by AT&T in 2021 indicates an apparent failure of the merger from a business perspective.
References
Bumgardner, L. (2019). AT&T and Time Warner’s vertical merger: The court battle and political undercurrent. Journal of Business Ethics, 25, 31-39.
Carlton, D. W., Giozov, G. V., Israel, M. A., & Shampine, A. L. (2022). A retrospective analysis of the AT&T/Time Warner Merger. The Journal of Law and Economics, 65(S2), S461-S498. Web.
Gupta, S., & Jha, P. (2023). A comparative study on the set-backs & benefits of acquisition and merger. IJFMR-International Journal for Multidisciplinary Research, 5(3), 1-7. Web.
Herzog, C., & Scerbinina, A. (2021). “Self-centered, self-promoting, and self-legitimizing”: CNN’s portrayal of media ownership concentration in the US. Atlantic Journal of Communication, 29(5), 328-344. Web.
Kuntz, K. N. (2022). United States v. AT&T, Inc.: Mega-merger or mega-monopoly? Journal of Business & Technology Law, 17, 113-117.
Martin, R. L. (2022). Rethinking the M&A model: Give value to get value. Strategy & Leadership, 50(3), 11-14. Web.
McDonnell, M. E. (2022). Ensuring fair competition in the midst of the streaming wars. Ohio State Law Journal, 83, 641-669.
Neff, A. (2020). A reassessment of vertical mergers within the context of antitrust laws: The Time Warner and AT&T Merger. Delaware Journal of Corporate Law, 44, 121-127.
Popiel, P. (2022). Protecting ‘competition, not competitors’: Antitrust discourse and the AT&T-Time Warner merger. Critical Discourse Studies, 20(3), 256-268. Web.
Shapiro, C. (2021). Vertical mergers and input foreclosure lessons from the AT&T/Time Warner case. Review of Industrial Organization, 59(2), 303-341. Web.
Underwood, O. (2019). Vertical merger enforcement in light of AT&T/Time-Warner. Journal of Corporation Law, 45, 833-850.