The AT&T-Time Warner Merger: A Match Built on Hope

Is AT&T’s $85 billion bid for Time Warner the triumph of hope over experience? It is certainly true that the last two mega-mergers involving Time Warner fell far short of their promise. After the 1989 marriage of Time Inc. and Warner Communications, for instance, it took seven years for investors to see any real gains in the combined companies’ stock. But even that painful deal paled in comparison to the 2001 merger of AOL and Time Warner. That was the worst combination in corporate history, at least until 2008, when Bank of America bought Countrywide Financial, the toxic mortgage lender.

This time it’s different, contends Randall L. Stephenson, AT&T’s chairman and chief executive. He called the merger “a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers.” There’s something for all investors in this corporate marriage, AT&T says: Those seeking earnings growth will benefit as well as investors on the hunt for income. For one thing, the company expects the combination to begin adding to earnings the year after it closes — a quick turnaround by traditional standards. And it also says the takeover will improve its so-called dividend coverage. That’s the measure of how much excess cash AT&T has to cover its 5.3 percent dividend. Company executives always make promises when they announce big deals. But talk is cheap, delivery costly.