Evaluation of a Merger or Acquisition: AT&T and Time Warner

Evaluation of a Merger or Acquisition: AT&T and Time Warner
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Evaluation of a Merger or Acquisition: AT&T and Time Warner
Introduction to the Businesses
AT&T is an American corporate business that offers telecommunication services and is known as the most extensive telephone services provider. The company offers wireless services, 5G, internet & fiber, and Warner Media (ATT, 2021). Time Warner is a premium content creator as the most significant film/ TV studio and leads to an unrivaled entertainment library. In 2016, AT&T merged with Time Warner, which would be a perfect match in a statement that would allow the business to deliver premium content from Time Warner to strengthen the network (Feiner, 2021). Combined businesses will create new content and customer choices to strengthen personal and social relations.
Evaluation of the Financial Statements of Both Companies
AT&T acquired Time Warner in 2018. The operating profit & loss statement shows business revenue was increased in 2019 after the merger by 6.1% and declined in 2020 by 5.2%. The overall operating profit margin was increased by 7.1% in 2019 and declined by 77.1% in 2020. The mobility subscribers are increased to 182,558 thousand in 2020 compared to 165,889 thousand in 2019. The reduction in the revenue occurred because of the COVID-19 pandemic. The situation has led to a decline in demand and eventually cash flow from $12,295 million in 2019 to $9,870 million in 2020. Similarly, the balance sheet analysis shows a decrease in assets and equities and an increase in debt, which has leveraged the business (ATT, 2020).
The financial statement of Time Warner shows net income is doubled in 2020 compared to 2019. The free cash flow of the business is also increased to $7,070 million compared to $4,608 in 2019. The increase in the revenue is the merger with AT&T and people's inclination toward the package subscriptions during the COVID-19. Time Warner's cash flow increase is due to more subscriptions from customers during COVID-19. The free cash flow is increased up to 50% due to repurchasing of charter stock and common units, which will be expected to increase further in the coming years (Spectrum, 2020). The merger was beneficial in strengthening the relationship with customers and improving subscribers.
Potential and Actual Risks during the Merger
AT&T merged with the business to reduce costs via the deal; however, the post-merger plan was expected to put financial pressure on the company. The businesses had to take huge loans to fund the deal's cash portion, which has increased the EBITDA ratio of AT&T 2.5 times more compared to 2017. Content production is also expensive for Time Warner, which has increased a competitive threat for the business. Moreover, unlike a horizontal merger, this vertical merger resulted in enormous costs for both businesses, increasing corporate and procurement expenditures (Forbes, 2018). Consumers did not see a massive shift because they believed that the merger had increased the subscription cost compared to other competitors. The business has a massive opportunity to exploit the value of Time Warner's content, which has hurt both co...