AT&T’s Deal for Time Warner is Actually Worse Than What Fox Offered

October 24, 2016, 5:11 PM UTC
TheWrap - TheGrill 2014 - Day 1
Photograph by David Buchan — Getty Images

Time Warner CEO Jeff Bewkes seems to be getting a standing ovation for the AT&T deal. He should be getting boos—loud, long ones.

The cheers are based on the fact that AT&T (T) is paying $107.50 a share for Time Warner (TWX). Two years ago, Rupert Murdoch’s 21st Century Fox offered $85 a share. So the extra $22 a share makes Bewkes look like a genius for waiting, right? Not quite.

In reality, Bewkes didn’t get a better deal for Time Warner shareholders, or at least not enough to justify the two year wait. Worse, in stalling to do a deal Bewkes flushed another $2 billion down the toilet. Hiss!

Here’s the real math. AT&T is offering just over $85 billion for Time Warner. That’s not much more than the $80 billion Fox offered in 2014. What’s more, Murdoch indicated that he would go up to $89 billion. So why is the acquisition price higher, making it look like Bewkes is getting a better deal?

It is because Bewkes, rather investing in Time Warner’s business over the intervening two years, spent the time buying back just under $8 billion in stock. In fact, stock repurchases were Time Warner’s second-biggest expense during that time, right after making movies ― reducing the company’s share count from 894 million to 795 million.

That’s why Time Warner’s shareholders are getting a higher share price in the AT&T deal. Those buybacks, and waiting two years, would still be smart if Time Warner shareholders were getting compensated for them. But they are not.

If Bewkes had gotten Fox to spend $89 billion, as Murdoch indicated he would, that would have translated to $99.50 a share, or $8 per share less than what shareholders are getting now. That means Time Warner shareholders are collectively getting $6.3 billion more than what they would have under the Fox deal. But, remember, in order to get that higher valued Bewkes spent $8 billion, or $1.7 billion more than what shareholders are getting back.

Not to mention that in the two years since Bewkes turned down Murdoch, Time Warner’s shares, up until the latest deal, went basically nowhere, while the overall stock market in general was up around 8%. And it’s going to take another year or two until the merger actually gets done.

So stop clapping for Bewkes and start throwing tomatoes at him. He deserves it.

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