I realize that this is heretical thinking, just as I realize that Time Warner stock was trading about 35 percent lower than its sale price when news leaked out four years ago that News Corp. was interested in buying it.
I also think that the deals Leon’s ruling is likely to unleash — major media companies combining in various ways to form media mega-companies — are bad for consumers, bad for stockholders and bad for our country.
Before we proceed, an aside. One reason I didn’t want the AT&T deal to go through is that I’m not sure that AT&T has the corporate courage to stand up to President Trump and keep CNN, one of Time Warner’s key properties, focused on independent journalism. Trump, of course, has declared CNN (as well as The Washington Post) an enemy of the people. That doesn’t seem to have diminished CNN’s independence under its former ownership. But who knows what will happen if, sometime during the Trump administration, AT&T wants something from the government.
My gut instinct — but I have no proof — is that a major reason (if not the major reason) the Justice Department sued to block the deal is that Trump hates the way CNN covers him. I’m sure that if Trump’s buddies at Fox were trying to buy Time Warner, Trump would have been cheering on the deal.
Okay, back to analysis.
Concentrating market power in fewer firms, as AT&T-Time Warner and future deals will do, isn’t good for the firms’ customers, whose bargaining power is diminished. Such deals also often work out badly for stockholders of the acquiring company, because absorbing a big acquisition is a lot easier to do on paper than in the real world. And these deals certainly don’t work out well for the employees who lose their jobs in the name of corporate synergy.
These observations are based on what I’ve seen during almost 50 years of covering business.
Time Warner and AT&T are classic examples of cluttered companies.
In Stage One, companies, urged on by Wall Street, gobble up everything in sight, the way the former Time Inc., which became Time Warner, did.
Then comes Stage Two. When fashion changes, the bulked-up companies slim down by disposing of properties, urged on by Wall Street. The Street, of course, makes fees, trading profits and whatnot on acquisitions, sales, spinoffs and everything else.
Back in 1989, Time Inc. bought Warner Communications and kept on expanding. In 2000, AOL bought Time Warner, which became AOL Time Warner, then became Time Warner again. Then, seeking “focus,” Time Warner sold Warner Music, spun off Time Warner Cable, spun off AOL and spun off the remnant Time Inc. magazine business, which was the original basis for the whole company.
AT&T’s history is even more complex. What is now called AT&T is the old Southwestern Bell, one of the seven “Baby Bells” that the original AT&T spun off in 1984 to settle an antitrust suit. Those spinoffs begat tons of subsequent deals, including some of the Baby Bells buying each other. In 2005, SBC, as it was then called, bought the weakened remnant of its former parent, took its name and became AT&T.
Is your head spinning? Mine is.
I happen to have owned stock in Time Warner, about 2 percent of my portfolio, because I got shares as part of my compensation when I worked at Fortune magazine, from which I retired in 2015. Fortune was owned by Time Warner until the Time Inc. spinoff in 2014.
So I kept an eye on this deal for both personal and professional reasons but generally kept away from writing about it.
I was struck by the fact that Leon basically laughed the Justice Department out of court on Tuesday, and told it not to seek a stay of his decision if there were an appeal. I’m not a legal affairs maven, but that language struck me as a major diss of the Justice Department.
I’ll spare you the complexities of why AT&T’s original deal — to give Time Warner holders $107.50 a share, half in cash, half in AT&T stock — was worth about $101 when the transaction closed. (It’s because there was a limit on how many shares AT&T was required to pay.) And how the $85 billion that Time Warner shareholders were supposed to get has dwindled to about $80 billion.
Throw in the $22 billion of Time Warner debt that AT&T is taking on, and you’ve got a $102 billion deal, down from about $107 billion when the deal was unveiled in October 2016.
I hope I’m wrong about all of this, that New AT&T thrives and that CNN isn’t forced to truckle to Trump by its new owners. As for me, however, I’m voting with my feet.
Time Warner didn’t hit $99.99, the price at which I offered to sell my stock shortly before the deal closed. But after all the paper gets shuffled and I get my AT&T shares, I’ll be selling. Who can say? With luck, I’ll end up with total proceeds higher than my proposed $99.99 sale price. If that happens, I’ll thank the market for saving me from myself.