Randall Stephenson, AT&T
Randall Stephenson, AT&T CEO Photograph by Robyn Twomey—Corbis

What Were They Thinking?

Oct 24, 2016

I wish I had been a fly on the wall when AT&T Chief Randall Stephenson and Time Warner boss Jeff Bewkes were deciding that a merger of their companies was a good idea. What were they thinking?

It’s easy to see what Stephenson likes about this deal. His wireless phone business is stagnating. His customers are consuming ever more video content on their mobile devices. Meanwhile, rival Comcast, which bought NBC Universal in 2011, appears to be thriving. He must have thought that, unlike his company's attempted purchase of T-Mobile in 2011, this one would pass regulatory muster, since AT&T and Time Warner compete in different markets.

But he somehow forgot the maelstrom of 2016 - a strong populist wind that is blowing across this country, and won’t stop for reason. At the same speech in Gettysburg this weekend where he called for a roll back of federal regulations, Donald Trump said the AT&T deal would “destroy democracy.” Bernie Sanders instantly called on government to “kill the deal.” Hillary Clinton was more cautious, but has said her administration would tighten antitrust enforcement. And if you are wondering what theory they might use to block the merger of two companies that don’t compete with each other, try this.

Meanwhile, Jeff Bewkes has to be patting himself on the back for turning down 21st Century Fox’s (fox) offer of $85 a share to get this hefty bid of $107.50. Still, I wonder: How could the man who sold off Time Warner Cable (tac) in 2008 because he felt content and distribution didn’t belong together, now decide they do? Or are the synergies with a phone company somehow greater than those with a cable company? (Fortune's Stephen Gandel is skeptical, given Time Warner's previous record with mergers. Click here to read his take.)

But Bewkes' shareholders are happy. So too are the investment bankers, who get their cut coming and going. And with interest rates near zero, what’s the harm in trying?

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