Time Warner Soars on Report AT&T Deal May Come This Weekend

(Bloomberg) -- Time Warner Inc. shares surged after the Wall Street Journal reported the media giant may agree to a takeover by AT&T Inc. as soon as this weekend.

Time Warner shares jumped as much as 11 percent, while AT&T fell as much as 3.3 percent. Bloomberg reported Thursday that executives of both companies had met in recent weeks to discuss business combinations including a potential merger, according to people familiar with the matter. The Journal said the talks are in an advanced stage.

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. Bewkes and his board rejected an $85-a-share approach in 2014 from Rupert Murdoch’s 21st Century Fox Inc., which valued Time Warner at more than $75 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 $2 billion to $50 billion, people familiar with the plans said earlier this month.

“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.

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

Telecom Powerhouse

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

Last year, AT&T paid $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 $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 $18 billion it spent in the federal airwave auction last year, AT&T’s net debt was $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.

To contact the reporter on this story: Crayton Harrison in New York at tharrison5@bloomberg.net. To contact the editor responsible for this story: Crayton Harrison at tharrison5@bloomberg.net.