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

attsign

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.

Sponsored by Dell Technologies

Whitepaper: How to Elevate Your Content Delivery Workflows With Dell EMC PowerScale

Learn how Dell EMC PowerScale helps meet surging viewer demand while reducing costs with a single centralized platform for the ingest, processing, and delivery of the content your viewers love.

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.

Suggested Articles

Speculation about a price increase has been swirling for months and now Netflix has confirmed rate hikes for its two most expensive plans.

Comcast’s cable business recorded revenue growth despite losing a total of 273,000 video subscribers in the third quarter.

Locast, a free streaming app for local broadcast television, said it now has more than 1.7 million users as it expands its footprint.