Let’s dive into the Beneficiary and the Sufferer of AT&T Time Warner Merger. Without having line items like groceries, electricity, and gas, it’s been almost impossible for a family to live for a long time. Now, it’s impossible to forgo digital communications services like high-speed broadband, cable or satellite TV. I think you use all the services on your phone and home.
In spite of complaining about the cable, internet or cell phone services, a typical American household spends around $2700 on these items yearly. It’s become a part of their everyday life.
In recent decades, the modest bunch of enormous enterprises that command this division have fastened their grip on the market. Successfully separating up the nation to secure territorial restraining infrastructures, they’ve schemed to restrict coordinate rivalry, and in this manner buyer decision: a couple of Americans have more than maybe a couple of genuine choices for a link or broadband service.
Justice flaccidly attests that AT&T will have an inducement to accumulate HBO and March Madness game for itself. Be that as it may, for what reason would AT&T pay $85 billion for Time Warner with a specific end goal to drastically shrivel its addressable market? The main point of the merger is to get a new path to dispense Time Warner’s content even more widely. AT&T is as of now cutting costs for Time Warner content.
AT&T Time Warner may create Competition between companies
You can see AT&T is already a big player in the market. AT&T owns DirecTV, a big TV subscriber. It certainly owns mobile phones. And it would be able to utilize that content to charge its Rival distributors, like Comcast, hundreds of millions of dollars more per year, as well as pass those cost on to consumers. Beyond DirecTV and AT&T mobile service, Time Warner owns HBO, TNT, CNN, a lot of studios, big assets that make a lot of content. When a player like AT&T is going to make a deal with another big player like Time Warner can you feel how much power they are going to get together? The merger within the two companies will create a big competition in the current market.
In the first place: it would give more grounded rivalry to Netflix and Amazon. Some days ago, John Malone in an exceptional meeting with CNBC said that Netflix and Amazon had pulled away in the video advertisement, with such speed and scale that they had left prevalent HBO well behind. HBO along these lines needs more scale, and they have to be quick. Exactly what justice department pretended that might happen.
Second: the merger would create a rivalry in the digital advertising market. Google and Facebook are completely ruling it now. By a few measures, Google and Facebook represent 70% of the $73 billion spent on web-based publicizing and produce somewhere in the range of 80% of online referral movement. AT&T thinks the mix of its portable, broadband and DirecTV stages with Time Warner’s substance could create an opponent in online advertisement arrangement that would be useful for publicists and buyers. And they would like to compete with Google and Facebook. That’s why AT&T wants to increase their range by a vertical merger with Time Warner.
Third: AT&T is coming out with its 5G wireless network technology. Time Warner will take this chance to help AT&T with their video content and develop apps to support the buildout of its vast new 5G wireless network. 5G will do different things using AT&T’s massive new spectrum resources. Obviously, it will create competition with residential broadband from cable companies like Comcast. There will be more rivalry in the broadband and pay-video space. It can just help to improve the exceptionally content appropriation concerns as the justice department highlighted about AT&T Time Warner complaint.
Why is the justice department against the deal of AT&T Time Warner?
The Justice Department said this merger would have harmed consumers. AT&T fired back and said it would challenge the government’s move in court. The AT&T and Time Warner, at their core, they don’t compete but are related to businesses. But still, DOJ arguing that they violate antitrust laws.
These typical vertical merger, companies which don’t directly overlap those go through. But in this fact, the Justice Department is saying that the combined company would have too much power. As I said earlier, AT&T is already a big company, so as Time Warner. When the two companies combine together they will be able to use their content to charge their Rival distributors like Comcast, hundreds of millions of dollars more per year, as well as pass those cost on to the consumers.
So, the big argument is going to be, will a judge buy that a larger, vertically consolidated Company pose a threat, or is it a better competitor to the new companies like Netflix and Amazon?
The main reason that the justice department is against this deal because if once they combine and increase the prices of their contents, the consumers forcefully have to allow that or they will go down at the market. They are thinking about it because AT&T couldn’t control the price of DirecTV and they increased the price previously. Ultimately, if they do anything like that, the consumers will have to suffer. The DOJ is aware of the previous vertical merger happened between the Comcast and NBCUniversal. The DOJ wants AT&T Time Warner to reduce their business by letting go of the CNN or DirecTV, which they won’t get much bigger. And only then DOJ might take out the sue they did against AT&T and Time Warner.
Is CNN going to be a big issue in front of AT&T Time Warner deal?
Some observers have openly wondered if the decision is influenced by the president’s continuing battle with CNN, which is owned by Time Warner. Some days ago, AT&T CEO Randall Stephenson said he didn’t know CNN played into the Decision. But it was an open question. It goes back to the prime question about whether then-candidate Donald Trump’s opposition to the merger and his criticism of CNN were a factor in this decision.
As you know, as a candidate in 2016, president -then-candidate Trump said he wouldn’t permit the merger to go through. Since then, he’s not straight commented on it. But AT&T is sharply going to make whether the president movements influence over the Justice Department as a result of his anger with CNN as part of the case. That’s an open question whether a judge will agree.
AT&T Time Warner Deal Extended One more Time
Once again AT&T and Time Warner have prolonged their $85.4 billion AT&T Time Warner merger agreement. While the Justice Department attempts to block the union, the companies are preparing for the legal battle against them.
AT&T said the companies agreed to delay the deadline for finalizing the deal to 21st June 2018, in a Securities and Exchange Commission. The two had protracted the agreement before in light of the extended regulatory review which had originally set in October 2016, through April 22.
For blocking the merger on antitrust grounds, the justice department filed a suit in federal court in November. On March 19, the trial is set to begin in Washington D.C.
Time Warner Inc. (TWX) is in a merger arbitrage circumstance with a strangely positive risk or reward skew. The stock is exchanging at a lofty markdown to the $107.50 offer cost (16% upside from current market levels) because the DOJ has sued to shut the deal. Meanwhile, the DOJ case is frail, and the exchange stays almost certainly to close, in my view. Essentially, the independent estimation of TWX has risen physically since the arrangement was declared 14 months prior, and could be 20% higher than the present market. Now, the investors are in a confused situation because they can get rewarded or they can face a loss depending on the deal might get closed or stays in the next six months.
If AT&T is unable to close the deal, AT&T must pay Time Warner a breakup fee of $500 million according to the AT&T Time Warner terms. Relative to the size of the transaction that’s a low fee, and a sign of AT&T’s confidence that the merger would pass muster with officials because the two companies have virtually no overlying actions.
Last Words
What is going to happen between the DOJ and AT&T Time Warner is still hazier to the people. There are a lot of confidential information among them which the public don’t know. Still, some information is leaking, but that information is taking us to a confusing path. A lot of rumors are going on about the deal. Some people think the deal is going to harm the consumers and some think there is no way to harm the consumers. Now it’s time to see who is going to win the case. That will take a bit time, and until then we have to wait and hope for the best. The result will give us the idea that what is going to happen next.
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