Stephenson Took Big Gamble in Antitrust Fight -- WSJ

By Drew FitzGerald

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 13, 2018).

Randall Stephenson kept his chips on the table and won big.

The AT&T Inc. boss struck an $85 billion deal nearly two years ago to buy Time Warner Inc., then took on U.S. antitrust enforcers in a high-stakes court battle after he refused their demands to divest cable channels including CNN.

A federal judge on Tuesday handed Mr. Stephenson a victory, saying in an unusually harsh opinion that the Justice Department had failed to make its case and the companies should be allowed to merge without conditions.

Mr. Stephenson also had gambled his career on the deal. He was unlikely to survive as AT&T's CEO if his merger strategy had been rejected, according to people familiar with the matter. Instead of leaving, the 58-year-old Oklahoman will take the helm of a media empire that's a country mile from the regional telephone company where he started working decades ago.

In less than three years, Mr. Stephenson has transformed the phone company he inherited into one of the world's biggest entertainment companies, snapping up satellite broadcaster DirecTV, the legendary Warner Bros. movie studio and a collection of top cable networks, including HBO and CNN.

When Mr. Stephenson took over AT&T in June 2007 it was largely a collection of former Baby Bells with a wireless business called Cingular. At the time, the company had just completed a merger with BellSouth that doubled its revenue to about $120 billion. With Time Warner, it will have nearly $200 billion of annual revenue, about a third tied to the television business.

Deal-making is core to AT&T's tradition. Mr. Stephenson's predecessor, Ed Whitacre, was a serial acquirer who used more than $200 billion in takeovers to turn Southwestern Bell into one of the nation's biggest companies.

But those deals were about gaining scale and cutting costs. Mr. Stephenson has sought deals that would add new growth engines to a company with a sizable dividend, hefty debt and slow growth.

His first attempt at a mammoth merger, a 2011 plan to buy wireless rival T-Mobile, failed when government officials sued to block the deal. Rather than fight, AT&T walked away and paid a breakup penalty worth more than $4 billion as it handed over wireless spectrum that helped turn around T-Mobile's fortunes.

But Mr. Stephenson didn't lose his appetite for deals and kept an eye out for a transaction big enough to move the needle for his company but that would pass muster with regulators. In 2015, he completed a $49 billion deal to buy DirecTV, a satellite company that turned AT&T into the country's largest pay-TV provider overnight just as cord-cutting was shaking the business.

Company executives later said they knew the satellite-TV model wasn't winning but hoped to use DirecTV's contracts with programmers as a steppingstone to something bigger. Now that growth in wireless market has slowed and DirecTV is shedding customers, Mr. Stephenson is betting that owning Time Warner's video content will provide new avenues for profit.

AT&T is entering a crowded market. The Dallas company will be fighting Comcast Corp. and Netflix Inc. for popular shows while battling Alphabet Inc.'s Google and Facebook Inc. for advertising dollars.

Mr. Stephenson, who has a finance background and climbed the corporate ladder, has said he plans to leave Time Warner's management alone to avoid rocking the boat. But the deal will combine two starkly different business models and work cultures, adding more risk to deliver on executives' promises.

He testified during the trial that he knew the acquisition would be a tough sell to his board at first. "You have to believe in the vision," he said.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

(END) Dow Jones Newswires

June 13, 2018 02:47 ET (06:47 GMT)

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