Why AT&T's pursuit of Time Warner makes sense
Business Lecturer Mike Davis talks about the AT&T-Time Warner acquisition reports.
By Mitchell Schnurman
Business Columnist
AT&T’s bold play for Time Warner Inc. surprised a lot of people Friday, including investors on Wall Street. But the move, which was widely reported but not confirmed by the companies, fits the pattern of the telecommunications giant.
For the past two decades, it’s used acquisitions to enter new businesses and new markets, increase its strength in important business segments, and help fuel sometimes spectacular growth.
The Dallas company was spun off from Ma Bell in 1984 as one of the seven so-called Baby Bells. Southwestern Bell later became SBC Communications and then AT&T after buying its former parent in 2005 and taking the corporate name.
Time Warner’s market cap hit nearly $70 billion on Friday after the stock price jumped almost 8 percent on the AT&T news. That’s a big number and analysts debated whether AT&T could handle the costs and maintain its dividend and investment-grade rating.
AT&T has taken on very large deals in the past and kept marching forward. In 1999, it bought Ameritech, a former Baby Bell, for $62 billion. In 2006, it added BellSouth for about $90 billion, including debt. Last year, it acquired DirecTV in a deal valued at $67 billion.
Can AT&T pull off another major merger now?
“The answer is absolutely yes,” said Michael Davis, a senior lecturer at Southern Methodist University’s Cox School of Business. “Sometimes, it takes an elephant to eat an elephant.”