AT&T said to discuss takeover idea in Time Warner meetings

[NEW YORK] Senior executives at AT&T Inc and Time Warner Inc have met in recent weeks to discuss various business strategies including a possible merger, according to people familiar with the matter.

The talks, which at this stage are informal, have focused on building relations between the companies rather than establishing the terms of a specific transaction, the people said, asking not to be identified as the deliberations are private. Neither side has yet hired a financial adviser, the people said.

Acquiring Time Warner would give AT&T, one of the biggest providers of pay-TV and of wireless and home internet service in the US, a collection of popular programming to offer to subscribers, from HBO to NBA basketball to the Cartoon Network.

AT&T CEO Randall Stephenson has been looking to add more content and original programming as part of his plan to transform the Dallas-based telecommunications company into a media and entertainment giant.

"There's a lot that's attractive about Time Warner," media industry veteran Peter Chernin, who runs an online video joint venture with AT&T, said in an interview Thursday on CNBC.

"I think they're both great companies." He said he didn't know anything about a deal.

Time Warner chief executive officer Jeff Bewkes is a willing seller if he gets an offer he thinks is fair, said one of the people. Mr Bewkes and his board rejected an US$85-a-share approach in 2014 from Rupert Murdoch's 21st Century Fox Inc, which valued Time Warner at more than US$75 billion.

Time Warner rose 4.7 per cent to US$82.99, valuing the company at about US$64.5 billion. AT&T fell 1.9 per cent to US$38.65.

Representatives for AT&T and Time Warner declined to comment.

Time Warner shares had gained about 23 per cent this year through Wednesday, boosted by sales gains at both its HBO premium channel and Turner cable-TV unit. AT&T is up 12 per cent in 2016, valuing the Dallas-based company at about US$238 billion.

AT&T has transformed itself over the last decade from a regional phone company to a national telecommunications powerhouse. Its plan to focus on media and entertainment targets include companies worth US$2 billion to US$50 billion, people familiar with the plans said earlier this month.

Last year, AT&T paid US$48.5 billion to acquire satellite-TV provider DirecTV, its biggest deal in at least 10 years, according to data compiled by Bloomberg. AT&T has been developing an internet-based version of the pay-TV service, called DirecTV Now.

"With the pending launch of the DirecTV Now OTT app, it might make sense to move onto content ownership, but Time-Warner is an awfully big first step into the content world," said John Butler, an analyst at Bloomberg Intelligence, in an e-mail.

The results are mixed with blockbuster deals that bring outsiders into the media industry. Comcast Corp has had a largely successful run since acquiring control of NBCUniversal in 2009. But Time Warner itself had one of the most disastrous mergers of all time when it combined with America Online Inc in 2000.

With US$7.2 billion of cash on hand, AT&T doesn't have enough firepower to make a big deal with cash alone. In the wake of the DirecTV purchase and the US$18 billion it spent in the federal airwave auction last year, AT&T's net debt was US$120 billion at the end of June.

Moody's Investors Service calculates the company's adjusted leverage at 3.1 times earnings and says the company's rating, three levels above junk, could be downgraded if it doesn't stay on track to fall below 3 times.

BLOOMBERG