Time Warner owes a $1.73B breakup fee if AT&T deal fizzles

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Time Warner’s agreement to be acquired by AT&T carries with it a significant termination fee should Time Warner back out.

According to an SEC filing, Time Warner will owe AT&T $1.725 billion should Time Warner’s board change its mind about recommending the merger or if Time Warner enters into an alternative agreement with another company. Time Warner is on the hook for the same fee if it’s unable to consummate the merger agreement before the termination date.

As for AT&T, it will owe $500 million to Time Warner if AT&T is unable to obtain the relevant approvals for the deal.

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AT&T’s willingness to agree to a breakup fee comes after the company did not agree to pay a similar penalty in the original transaction agreement for its purchase of DirecTV, a deal that was eventually approved. AT&T’s avoidance of any merger-related penalty within the DirecTV deal came only a few years after the operator ended up having to pay $6 billion in cash and assets to T-Mobile after AT&T’s bid to buy the smaller carrier was blocked by regulators.

As stated by both companies, the merger is expected to close by the end 2017. The $85 billion acquisition, which values Time Warner at $107.50 per share, will be covered 50 percent by AT&T stock and 50 percent in cash. The price represents a 36 percent premium over Time Warner’s closing price of $79.24 on Oct. 19. In addition to the $85 billion purchase price, AT&T will be taking on $21 billion in debt, bringing the total of the deal to $106.4 billion.

AT&T CFO John Stephens said today during an investor call that the cash portion of the deal is already fully financed by a $40 billion bridge loan.

The companies expect the deal to be accretive to adjust earnings per share and free cash flow within 12 months and anticipate cost synergies around $1 billion.

Contrary to reports, Time Warner CEO Jeff Bewkes today he will stay on as part of the combined company after the merger.

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