Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Know what you don't know. That's always been the biggest risk underlying AT&T Inc. CEO Randall Stephenson's ambitious $109 billion takeover of Time Warner Inc.

But investors can now take some comfort in knowing that Stephenson -- recognizing that he and AT&T's team certainly aren't Hollywood business people -- appears to have a plan for the new conglomerate's upper ranks so that this odd-couple pairing just might work. 

Almost There
The spread between AT&T's offer and Time Warner's stock price is narrowing, a sign that investors are becoming more confident the deal will get approved in the coming months
Source: Bloomberg
Note: AT&T's offer comprises cash and stock subject to a collar.

For nine months the telecom and media industries have been captivated by the mega-merger. Investors embraced AT&T's surprising strategy, and have even moved on to trying to guess which of the companies' rivals will hook up next to capitalize on the future of mobile video. That doesn't change the fact that this is still bound to be quite a culture clash: A Dallas telecommunications provider, whose roots can be traced back to the invention of the telephone, is acquiring a TV-and-movie production company. Right down to capital needs, business strategy and seasonality, the two have their differences -- not that there isn't a rationale for putting them together anyway.

The New AT&T
AT&T's takeover of Time Warner will turn America's No. 2 wireless carrier into a telecom and media conglomerate
Source: Bloomberg

But details emerged Friday from Bloomberg News's Scott Moritz that should quell some of these concerns. Stephenson will oversee a major reshuffling of the company's leadership so that Time Warner's media business and its leaders have autonomy from the AT&T wireless phone operations. While Stephenson, an Oklahoma native whose career began at Southwestern Bell more than 30 years ago, will remain CEO and chairman of the combined entity, he'll let John Stankey, who now heads up AT&T's DirecTV and entertainment business, run the new media division as CEO. DirecTV will get tucked into the legacy AT&T side of the company, which also will have its own CEO, John Donovan, who is currently strategy chief. 

Of course, AT&T is also looking to keep key Time Warner executives, which most would consider to include Richard Plepler, head of HBO, Turner Broadcasting's John Martin and Warner Brothers' Kevin Tsujihara. As for Time Warner CEO Jeff Bewkes, he has said he'll stay on in some capacity for at least a year after the merger is complete.

This plan isn't just what AT&T and Time Warner shareholders needed to hear, it's also welcome news for their employees. Massive mergers like this can cause a stir internally and result in unwanted -- if not detrimental -- turnover. Should this go down as reported , the two businesses would remain separate under the parent's umbrella. It's really the only way for a conglomerate like this to work. 

Corporate America in recent years has gone through a breakup phase, in which other conglomerates were dismantled. It's difficult to run -- and even harder to value -- a hodgepodge of disparate businesses. AT&T's acquisition of Time Warner would seem to be going against the grain, but in order for it to work, Stephenson needs to let Time Warner do its thing. 

Will it work? The company is at least taking the right steps. However, as I wrote back in March, the transaction won't necessarily transform AT&T into a must-have investment even if the integration goes smoothly. Both businesses face challenges, not the least of which is the financial burden of the deal itself. 

Need to Diversify
AT&T lost 191,000 subscribers in the first quarter amid an industry price war, which underscores the wireless carrier's expansion into the TV and movie business
Source: Bloomberg

But for now, the biggest hurdle is simply getting the transaction across the finish line. Time Warner owns CNN, and with President Donald Trump in an ongoing and at times vitriolic feud with the network, there's been concern that it would infect the regulatory approval process. Some have gone so far as to speculate that CNN could be cast off from the company. But the deal may yet be on track without such hiccups: CNBC's David Faber reported Friday that it could close as soon as mid-September. 

Once it does, then comes the fun part. AT&T, welcome to Tinseltown.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net