AT&T Merges with Time Warner: A Digital Advertising Powerhouse

Introduction

Time Warner is a media firm and it controls several popular brands such as CNN, TNT, and TBS. They also own the Warner bros enterprises. The decision of AT&T to merge with Time Warner was meant to market the Time Warner's huge content to other cable organization as well as consumers. It also aimed to collect the usage data regarding the content to be viewed which eventually would make the company form a firm for digital advertisement arm which will compete for business with other major companies such as Google and Facebook (Kumar, 2019). Since the industry is very competitive and different companies have come up with technology-based innovative ways of winning the customers, the merger intended to address all these challenges.

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According to the recent report contained in the Washington post, the merger would have a huge effect on the business across the United States of America. It is the biggest telecommunication company in the whole world. It is also the second-largest company in the provision of mobile services. The company is also the largest service provider of fixed telephone services in America. It provides all these services through AT&T communications (Kumar, 2019).

According to the 2018 earnings, in the fourth quarter of 2018 the company performed so well by generating $47.99 billion in revenues and the earnings per share was 86 cents. According to the estimates by the wall street journal analysts in the same year, the earnings per share was to be at 86 cents and the total revenue was to be at $47.99 billion, though the real picture showed that there was a drop. The company's top priority in2019 is to reduce the amount of taxes. Most of the revenues of the company come from the mobile phone and fixed line services that it offers mostly to its customers in the United States of America. For over more than a half a century the AT&T Company was considered as the biggest company not only in the telecommunication business but also in other areas of the market. In 1918 the company was granted the monopoly by the government of the United States of America to be the only provider of the mobile and fixed phone services in most of the United States of America. However, in 1970 the government officials changed their minds against the monopoly status and filed a case against the company (Kumar, 2019). This is one of the biggest cases because the government had sued the company on being antitrust.

The case took more than ten years to be resolved. After the determination of the case, the company ceased its monopoly, and that led to the creation of telephone companies which were operating at the regional level. However, the company continued rebranding itself, and this has led to the company being one of the biggest and most successful companies in the United States. Currently AT&T with a market capitalization exceeding $216.81 billion it is one of the dominant companies in the telecommunication industry more especially the mobile telephone business.

There are two main segments which generate most of the income for the company. The first one is the business solutions segment. This segment provides the services which are consumed by the government, companies, as well as other organizations. Since in the current environment having very good internet, is good for the business, the company makes good money through the provision of internet services to both the private sector and the government (Kumar, 2019). The most common internet services the firm provides to other companies is the Wi-Fi which according to the 2017 annual financial report generated $69.4 billion in revenue. The second largest segment which generates most of the revenue is the entertainment which includes the television, the advertisement services, and voice communication. In this segment, the section that is generating most of the revenue is the u-verse which is utilized by the internet or the television. The third biggest segment in terms of generating income is the consumer mobility which in 2017 accounted for 201% of the total revenue of the company. At the beginning of 2018, the company had141.6 a million customers who had subscribed to its wireless services (Kumar, 2019).

The AT&T comprises of four main areas. This kind of division makes it possible for the company to conduct its business quickly and independently though it mainly focuses on innovations of its advertisement, content, and connectivity. The media section of the business which comprises of the Turner and Warner Bros and HBO generated a revenue of $31 billion in 2017. The AT&T media mainly focuses its services in Mexico and more than 11 countries in the South, and it was able to generate$8 billion in revenue in the year 2018. The diversification of the business of the company has made it successful because if one area fails to generate enough revenue, the other areas will (Kumar, 2019). However, this has not been the case because the giant has been generating good revenue for the last ten years.

The time Warner which merged with AT&T is also one of the biggest companies in the United States more especially in the provision of media and entertainment services.thecompanyhasbeenmakinghugeprofitsforthelastdecade.thereforethemergerwasnotbecausethecompanywasperformingpoorlyfinanciallybutrathertoincreaeethescopeofitsoperations. In 2018, the AT&T Company was ranked position nine amongst the 500 fortune companies. Therefore, the two merging companies have a history of performing well and commanding a considerable market share in their specific areas of operation (Kumar, 2019). The main difference between the two firms is that the AT& T products, as well as its services, are offered through its subsidiaries and the affiliates.

To estimate the value of the company based on its future cash flows, first, the present value of the company has to be found through the use of a rate which is discounted. Since currently, the company has a market value of $200 billion, its estimated future value is likely to be $250 billion because the firm has a very strong asset portfolio and the legacy assets remain strong. The company also plans to clear all its debts in the year 2019 and has robust strategies on its media and entertainment segments. The abnormal return refers to the actual return of the security of a company against the expected returns (Kumar, 2019). In some cases, the abnormal returns are brought about by events which may include the merger of companies, the dividends, the lawsuits or the announcement on the increase of interest rates among others.

Reference

Kumar, B. R. (2019). Wealth creation in the world's largest mergers and acquisitions: Integrated case studies. Cham, Switzeland : Springer