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AT&T Aims for an Empire in Merger Talks With Time Warner

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“According to my sources, this thing is going to go for way north of $90 a share,” said Andrew Ross Sorkin, adding pressure on CBS and Viacom to merge.CreditCredit...CNBC

Leslie PickerAndrew Ross Sorkin and

For companies that sell consumers cable and internet service, merely distributing entertainment and programs is not enough. They want to own them.

The media conglomerate Time Warner, which owns HBO, CNN and the movie studio Warner Bros., has long been among the most prized takeover targets.

It is being courted by AT&T, a telecommunications giant that lacks ownership of any of the shows and videos it delivers through its various businesses. The two are in advanced talks for AT&T to acquire Time Warner, and a deal may be announced as early as Monday, according to people with knowledge of the discussions.

A merger would come at a pivotal time in the communications industry, where the giants are scrambling to create entertainment empires to maintain competitiveness as consumers increasingly embrace cheaper, digital alternatives.

More combinations, possibly involving Comcast, Viacom or Apple, could reshape the media landscape. Already, the family that controls Viacom and CBS has asked their boards to study a possible merger, a deal that could happen before the end of the year.

Regulators have been wary of allowing combinations of businesses that could create less competition and thwart innovation by start-ups, and a tie-up of AT&T and Time Warner could raise concerns. It is a bold move in an election year that will usher in a new administration and a fresh set of regulators.

Time Warner is asking AT&T to pay more than $90 a share in the deal, said the people who asked not to be named because the details are still private.

At a minimum, that amount, which would put the price around $70 billion, would make this deal the largest of the year, surpassing Bayer AG’s $56 billion takeover of Monsanto.

The transaction is not yet final and may fall apart or get delayed, said the people with knowledge of the discussions. Representatives from Time Warner and AT&T declined to comment.

A combination with AT&T would be an about-face from Time Warner’s strategy just seven years ago. The company divested Time Warner Cable in 2009, and Time Inc. in 2014, in order to focus on developing programs and entertainment.

But since then, other cable providers have teamed up with media companies. Comcast agreed to acquire NBC Universal from General Electric Company for about $30 billion in 2009. Verizon acquired the aging internet property AOL last year for $4.4 billion and signed a $4.8 billion deal to acquire the core business of another older internet firm, Yahoo, earlier this year.

The terms of the AT&T transaction will most likely be higher than the $85-a-share price that 21st Century Fox was willing to pay for Time Warner two years ago. Time Warner spurned the proposal, saying it could create more value for shareholders by staying independent, and 21st Century Fox, led by Rupert Murdoch, withdrew the offer.

AT&T’s interest in Time Warner comes more than two years after it announced a $48.5 billion deal for DirecTV, the nation’s largest satellite television provider. The merger created the country’s largest television distributor with about 26 million subscribers, surpassing Comcast.

Still, AT&T has historically been less aggressive than its peers in building a content empire. It was a losing bidder for Yahoo, for example.

But it has had some exposure to content. By purchasing DirecTV, AT&T obtained the rights to N.F.L. Sunday Ticket, giving customers access to football game broadcasts. The company also created a joint venture in 2014 with the Chernin Group to invest in media businesses and start internet streaming video services.

AT&T has a tendency to acquire industry leaders. In the media world that would be Time Warner and Disney, and Disney’s $150 billion market valuation makes it a much larger takeover to swallow. Two other companies, Viacom and CBS, both controlled by the Redstone family, have been exploring a reunification.

The biggest question posed by analysts after Bloomberg News first reported the talks on Thursday is whether or not this transaction would pass regulatory muster. Regulators including the Federal Communications Commission and the Justice Department have historically been skeptical of similar combinations.

“At best, we believe a lengthy antitrust review of T/TWX with an uncertain outcome may give both sides pause on considering a combination,” Credit Suisse research analysts wrote in a note on Thursday using the ticker symbols for AT&T and Time Warner. “At worst, it may act as a barrier to a deal being proposed, in our view.”

Additionally, it is an audacious move with the presidential election just around the corner, which will most likely yield a reshaping of the top regulators that will study this deal. Hillary Clinton has promised to be tough on corporate mega-powers and consolidation within industries. Most analysts have surmised that a deal between AT&T and Time Warner would carry a significant amount of regulatory scrutiny.

For Jeff Bewkes, the chief executive of Time Warner, signing a deal may be worth the risk, if AT&T is willing to pay both a high enough price and a generous breakup fee in the event that the combination is blocked, said Richard S. Greenfield, an analyst at BTIG.

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The headquarters of Time Warner in New York. Today’s Time Warner is the byproduct of many rounds of spinoffs and acquisitions.Credit...Time Warner

The last comparable merger, involving Comcast’s purchase of NBCUniversal, was approved by the Justice Department and the F.C.C., but Comcast’s attempt to purchase Time Warner Cable was blocked by regulators.

In addition to the potential regulatory challenges, an acquisition of Time Warner would be a large one for AT&T to digest. The combined company would have about $150 billion worth of debt, with around $175 billion in annual revenue. In a low-interest rate environment, financing of such large deals has been more prudent.

Some analysts are skeptical that AT&T could handle the deal. AT&T has said its “plate is full” in absorbing DirecTV, Mike McCormack, an analyst with Jefferies, said in a note.

Time Warner itself is no stranger to slicing and merging. The company is a byproduct of a merger between Time Inc. and Warner Communications in 1989, which created the largest media conglomerate in the world at the time, with cable, publishing and movie assets. Seven years later, the company acquired Turner Broadcasting, bringing the cable network CNN under its wing.

In 2000, Time Warner merged with AOL, a combination that has since been seen as one of the largest mistakes ever in deal making. Nine years later, Time Warner said it would spin off AOL at a fraction of its valuation after the dot-com bubble burst.

These days, Time Warner’s units comprise premium channels such as HBO and Cinemax, as well as Turner, which operates TBS, Turner Sports and others, in addition to CNN. Time Warner also runs Warner Bros. Entertainment, which released movies including “Sully,” “Storks” and “Suicide Squad” this year.

If the deal between AT&T and Time Warner succeeds, other media and entertainment companies could become takeover targets. Many stocks in that industry gained on Friday as more reports surfaced about the deal.

Time Warner’s shares gained 7.8 percent on Friday to $89.48, while AT&T’s declined 3 percent to $37.49.

Michael J. de la Merced and Cecilia Kang contributed reporting.

A version of this article appears in print on  , Section A, Page 1 of the New York edition with the headline: AT&T Aims for an Empire With Time Warner. Order Reprints | Today’s Paper | Subscribe

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