Time Warner-AT&T: As Good as It Gets for Long-Suffering Investors?

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Jeff Bewkes

Wall Street seems satisfied that if CEO Jeff Bewkes can get about $100 billion for the company, it’s a deal worth taking, and he’ll have done about as good a job as anyone could have reversing the AOL Time Warner debacle.

It remains to be seen if AT&T and Time Warner can strike a merger agreement, but longtime investors and employees of the entertainment conglomerate — those who were around during the AOL Time Warner era — are likely breathing a sigh of relief at the prospect.

Insiders say a deal could be struck in a matter of days, rumors that sent the stock 8 percent higher to $89.48 a share Friday after it has already been propped up for the past two years, ever since an $85-a-share bid from 21st Century Fox was rebuffed.

While investors who have been around for at least 15 years have not yet been made whole, the feeling among many of them is that this is as close as they’ll get, given Time Warner’s rocky history so far this century, beginning Jan. 10, 2000, when it said it would merge with AOL.

On that day, then vice-chairman Ted Turner called the impending nuptials “better than sex.” Indeed, employees watched the value of their retirement accounts swell as the stock rocketed to $208 a share. It was short-lived, as the stock sank to $135 a share before the deal closed a year and a day later and the ill-fated creation of AOL Time Warner was official.

The whole thing unraveled with the bursting of the dot-com bubble, dashing dreams of early retirements for thousands of workers. Turner said he personally lost $8 billion as the stock plunged 90 percent in less than a decade.

But even with shares of Time Warner now trading for less than half what they were worth 15 years ago, Wall Street seems satisfied that if CEO Jeff Bewkes can get about $100 billion for the company, it’s a deal worth taking, and he’ll have done about as good a job as anyone could have reversing the AOL Time Warner debacle.

“At the right price, it is always a good time to sell,” says Steven Birenberg of Northlake Capital Management. He adds that, with technological change impacting the entertainment consumption habits of consumers, “It is a perfectly good time to accept a nice, big, fat premium for Time Warner."

In fact, Wall Street has been speculating for years that Bewkes has been grooming Time Warner for a sale, which is why he spun off AOL and Time Warner Cable before splitting the remaining company into two: Time Inc. for the print assets and Time Warner for electronic entertainment.

“Media investors win in this game of thrones,” said Steven Cahall of RBC Capital Markets, who anticipates AT&T could close a deal for Time Warner at about $104 a share.

Game of Thrones, of course, is a reference to HBO’s massive hit show, and HBO is likely a prime reason AT&T wants to acquire Time Warner, given the steady revenue it provides (similar to a monthly phone bill) and the prospects for its standalone, digital asset: HBO Now.

“HBO is arguably the best content platform in media with low-risk growth prospects as it renegotiates current sub pay terms and gains traction with HBO Now and increases overseas distribution,” Cahall says.

Investors can make out even better if others jump into the fray and a bidding war ensues, but observers say there are only a few companies with the desire and financial capacity to acquire Time Warner. Apple and Amazon.com are rumored to be interested in the acquisition of a major entertainment conglomerate, but neither is likely interested in a bidding war or they might have engaged in one when 21st Century Fox was on the prowl for Time Warner.

“Time Warner has gotten a lot of grief from shareholders over the past few years for not considering the 21st Century Fox bid — especially since sentiment on media in general has become increasingly negative,” says Wells Fargo analyst Marci Ryvicker.

In general, analysts think that an AT&T-Time Warner deal would get regulatory approval, though it won’t be easy, as some lawmakers in Washington still regret allowing Comcast to purchase NBCUniversal three years ago.

“This is a big deal for AT&T — maybe too big, with regulatory baggage,” Ryvicker says.

Wall Street also presumes that a sale, or even the possibility of a sale of Time Warner, will set off another wave of consolidation in entertainment.

“One obvious question is whether Verizon would follow suit,” notes Barton Crockett of FBR. And, of course, rumors continue to swirl around the possibility that CBS and Viacom will merge.

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