Would a Writers’ Strike Threaten the AT&T-Time Warner Deal?

Writers Guild played that card in an attempt to sway Wall Street

AT&T Time Warner
AT&T Time Warner

AT&T’s impending $85 billion deal to acquire Time Warner is the biggest media merger since the latter’s ill-fated 2000 union with AOL. It’s a deal that’s all about AT&T bringing the source of some of the world’s most popular programming — the home of the Warner Bros. studio, CNN and TNT, among others — in house, as it builds out its new distribution platforms like streaming service DirecTV Now and its 5G mobile network in a changing video consumption environment.

But with the prospect of Hollywood writers going on strike this week, a lot of that programming may not get made. And that could make what Time Warner’s selling a lot less enticing — at least, that’s what the Writers Guild says.

“A writer’s strike could undermine AT&T’s primary reason for acquiring Time Warner, which is ownership of compelling content,” WGA West director David Young wrote in an April 6 letter obtained by TheWrap. “A strike could also delay any potential shareholder benefits from the acquisition.”

A strike would certainly affect plenty of Time Warner shows, notably late-night fare like TBS’ “Conan.” But could it really derail such a massive deal — one that even prompted the president to weigh in on the campaign trail (and AT&T executives to visit with him)? That’s highly unlikely.

For one, while Wall Street gets plenty of deserved abuse for looking at everything one quarter at a time, AT&T spending $85 billion on Time Warner’s content is part of longer-term strategy (it has to be at that price) that shouldn’t get derailed by a strike that — even if it happens — is likely to get resolved within a few months. The guild’s longest-ever strike, in 1988, lasted 22 weeks.

And ultimately, the best judge of whether big deals live or die is often Mr. Market. AT&T’s stock dipped less than 1 percent last week, meaning investors aren’t particularly concerned the strike will blow up the deal (in fact, the slight dip may be more tied to lackluster earnings and another deal, AT&T’s proposed acquisition of wireless spectrum holder Straight Path Communications, which received a competing bid ) AT&T’s stock is down another 1 percent today. And during its April 25 earnings call, AT&T Chairman and CEO Randall Stephenson told investors and analysts he expects the transaction to close this year.

More to the point, shares of Time Warner — the actual acquisition target, whose shares would be most affected by the deal going south — is down less than half of a percent over the last five days. AT&T’s offer to acquire Time Warner last October was for $107.50 a share in cash and stock, a 20 percent premium over its then-share price of $89. Time Warner’s stock had jumped prior to that, closing at $79 the day before reports emerged of AT&T’s interest.

But despite the weekend having come and gone without a deal and negotiations coming down to the wire between the producers and a guild that overwhelmingly voted to strike, Time Warner’s shares are slightly up through mid-afternoon trading at around $99. That is less than AT&T’s offer price, as is Time Warner’s 52-week high of $100.60 a share, as even with a friendlier regulatory regime — which Stephenson has mentioned repeatedly in AT&T’s earnings calls. Bottom line: Getting the mega-merger across the finish line is not a sure thing. And it wouldn’t be a Hollywood deal without some added drama.