Difference between AT&T and Comcast: deal hubris

Both U.S. firms used big acquisitions to somersault from piping data to people’s homes and cellphones into making and distributing film and TV

  
The company logo for AT&T is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., September 18, 2019.

The company logo for AT&T is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., September 18, 2019.

REUTERS/Brendan McDermid

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

NEW YORK - AT&T T.N and Comcast have something in common. Both U.S. firms used big acquisitions to somersault from piping data to people’s homes and cellphones into making and distributing film and TV. Now AT&T is U-turning, ditching Time Warner in a merger with Discovery announced on Monday. Comcast is humming along just fine with NBC Universal. That’s because there are also big differences between the two.

Comcast boss Brian Roberts was conservative when he bought NBC Universal from General Electric, an odd owner of the U.S. media outfit given its history in jet engines and refrigerators. Roberts bought NBC in two stages, helping him get a better handle on the business. It wasn’t a total departure, since Comcast owned the Golf and E! channels. He handed oversight to long-time lieutenant Steve Burke, who had run Walt Disney’s ABC.

By comparison, AT&T’s purchase of Time Warner in 2018 managed to be both audacious and too slow to bed down. Then-boss Randall Stephenson took AT&T well outside its telecommunications comfort zone. True, the company broke down organizational walls between divisions like HBO, Turner Networks and Warner Bros. But it was only last year that AT&T appointed Jason Kilar, an experienced streaming executive, to lead WarnerMedia and shepherd the launch of HBO Max. AT&T’s streaming and cable network have over 60 million subscribers after its first year. Disney’s direct-to-consumer products have nearly 160 million, by comparison.

Price is what really distinguished the two deals. When Comcast took control of NBC Universal, the whole thing was valued at approximately $39 billion, or roughly 9 times EBITDA. Apply that same multiple to the $8.8 billion NBC made before the pandemic in 2019, and it’s worth almost twice as much now, albeit helped by acquisitions like movie studio DreamWorks. Time Warner’s $109 billion price tag in 2016, on the other hand, was roughly 13 times EBITDA. The Discovery deal would see it break even but not much more.

John Stankey, who took over AT&T last summer, is still right to cut Time Warner loose. It frees up the media group to battle for streaming subscribers against Netflix and Disney and lets AT&T focus on a parallel war for 5G mobile customers. But it could take over a year to close, during which time Comcast and rivals will make hay. Buyer’s remorse comes on quickly and takes ages to shake off.

CONTEXT NEWS

- AT&T said on May 17 it would combine its WarnerMedia programming assets, which include HBO Max and the Warner Bros movie studio, with Discovery, home to the Food Network and HGTV.

- Under the terms of the all-stock transaction, AT&T shareholders will receive stock representing 71% of the company as well as $43 billion of cash and debt securities.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | Editing by John Foley and Amanda Gomez) ((jennifer.saba@thomsonreuters.com; Reuters Messaging: jennifer.saba.thomsonreuters.com@reuters.net))


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