For the past weeks, AT&T had been in advanced merger talks with Time Warner and today (Saturday), AT&T reached a deal for $86 billion. On Friday, the Wall Street Journal broke the story that Apple had been in discussions with Time Warner as well. These sorts of tie ups provoke a combination of anxiety (Donald Trump has already come out against the deal) and puzzlement – what benefits will arise from the merged entity? Will the deal really allow AT&T to ‘reinvent itself for the web’, as claimed in the Bloomberg story? What impacts will this have on consumers for good (in terms of better, more joined-up products and services on the one hand and in terms of the ability to dominate markets and thereby extract rents on the other) or will the claimed synergies never emerge and this will have proven to be one of many overoptimistic acquisitions?
In 2000, the largest, most profitable internet company of its day, AOL, acquired Time Warner, in what has since widely been described as one of the worst acquisitions in history. It may seem easy to dismiss in hindsight, but at the time the proposal engendered significant regulatory scrutiny and was viewed as transforming the media and internet industries around the world.
Apple (like Google, today’s most profitable internet company) are sitting on vast cash reserves seeking to justify how to spend these (rather than, say, just return most of their profits back to shareholders as dividends, similar to what oil and gas companies have done for decades). For example, Apple has also recently issued bonds as a way of returning cash to shareholders.
Concerns can be raised even for relatively ‘straightforward’ acquisitions such as Softbank’s acquisition of ARM Holdings where Softbank as essentially a holding company, which means most acquisitions are largely additive whereas AT&T (or Apple) with Time Warner raises more fundamental questions about corporate strategy and the credibility of new business models and whether government can intervene effectively. That leaves some questions from the specific to the general:
- It is difficult to reach a clear view on the likely success of the AT&T-TW deal without much more information, but what information would you want to know to allow you to decide on whether the deal should go ahead?
- How should governments and regulators respond to such multi-billion pound proposals?
- What are the most important bets a firm like Apple or Google should be making? Is it content? automotive? other?
- Would you describe yourself as someone who is generally optimistic about the potential for such mergers to deliver new value propositions and efficiency gains to consumers (and shareholders) or do you take a more pessimistic view and worry more about the dangers posed?