To understand what drove Randall Stephenson to do the deal of his life, combining AT&T with Time Warner, you have to go back two decades to a threadbare office in Mexico City.
That’s where Stephenson, a rising star at the Southwestern Bell Telephone Co., was installed to oversee the company’s holdings south of the border. He would work alongside Carlos Slim, a cigar-smoking King Midas who had taken investments in real estate, cigarettes and bottling factories and turned them into a fortune big enough to acquire the state-run phone monopoly.
The two became fast friends, and Oklahoma-born Stephenson picked up a habit of Slim’s — obsessing over a detailed list of potential acquisition targets, routinely updated with the latest market valuations. Over the years, as Stephenson rose up the chain and his company morphed to become AT&T, he kept his mentor’s method in mind.
These days, Stephenson’s list looks a little different than Slim’s old notebook. It resides on AT&T’s cloud, where only the chief executive officer can access the color-coded sheet of 40 to 45 companies, constantly updated with stock and bond prices. He calls it his scan.
“I live my scan,” Stephenson, 56, said in an interview on Sunday. “The list grows; it’s a living breathing document. Some companies come on and some go off. Time Warner now comes off.”
Stephenson was just looking for opportunities outside his family’s cattle-feed business when he joined Southwestern Bell in 1982 on the recommendation of his brother Kevin, who is still an AT&T lineman in Oklahoma. It’s been a wild ride. From the time Randall became chief financial officer in 2001, on through his appointment as CEO in 2007, and up to last year, he had already done more than $200 billion in deals, plus a $39 billion one that got killed by regulators.
“Within a couple of years of completing a deal they will be surveying the horizon for the next one and the bigger they get, the bigger the next deal has to be,” said Jonathan Chaplin, an analyst at New Street Research. “And this really kicked into high gear when Randall ascended to the role of CEO.”
The $84.5 billion Time Warner acquisition, announced on Saturday, figures to be his biggest yet, both financially and in terms of the way it would transform Dallas-based AT&T.
Stephenson, a longtime Republican party backer with a country twang, hardly fits the mold of an entertainment mogul. If the Time Warner deal gets government approval, he’ll be sending himself headlong into the world of Hollywood actors and New York media elite, from CNN to HBO to Warner Bros.
It’s hard to imagine the stodgy phone company and the flashy TV-and-movie business coming together without clashing. And that’s just one of the risks the CEO is putting on AT&T:
– Stephenson, whose ambitious attempt to acquire T-Mobile USA Inc. was stymied by regulators in 2011, is betting he can clear the Time Warner deal through Washington despite rising concerns about the concentration of media.
– Coming just 18 months after the $48.5 billion purchase of satellite provider DirecTV, the Time Warner deal will put pressure on AT&T’s investment-grade credit ratings
– Stephenson is also calculating that this marriage of content and distribution will be the right combination to keep pace with rapid technological change in the industry.
AT&T shares fell 1.3 percent to $37.01 at 9:52 a.m. in New York. Time Warner dropped 2.8 percent to $86.98 — 19 percent below AT&T’s offer price, showing investors’ skepticism that the deal will get done.
Despite his long experience pulling off big mergers and acquisitions, Stephenson hasn’t attained a reputation like Slim’s as a visionary dealmaker. Before he became CEO, he was instrumental in making the after-merger work of integration go smoothly, bringing cultures together when his company acquired BellSouth Corp. and the old AT&T Corp. Time Warner gives him a chance to prove he’s not just a skillful manager but a strategic mastermind.
“It is too early to judge Stephenson’s M&A acumen,” said Kevin Roe, an analyst at Roe Equity Research. “In fact, the jury is certainly still out on the DirecTV acquisition.”
The failed T-Mobile deal was a low point for Stephenson as a dealmaker, forcing AT&T to pay its smaller rival a $7 billion breakup package that included cash, spectrum and network agreements. Worse, the windfall reinvigorated T-Mobile, whose growth has surged. In the aftermath, Stephenson’s pay was docked $2.08 million in 2011.
After his misjudgment of the U.S. regulatory climate, Stephenson took a hard look at expanding in Europe with a deal for Vodafone Group. That effort was abandoned when AT&T made an offer for DirecTV, though Stephenson’s company did begin a more modest international expansion in 2014 with the purchase of wireless carrier Grupo Iusacell SA in Mexico.
The Mexico deal put Stephenson in direct competition with his old friend Slim, who had attended his daughter’s wedding just a few years before. Stephenson said they haven’t been in contact since.
“I miss the guy,” Stephenson said. “Look, you have people in your life that are wicked smart and great entrepreneurs, and you want to be around them. You learn a lot from people like that. To have one you don’t get to be around, well of course you miss it.”
Normally after such a flurry of deal activity in a few years, a company would be expected to take more time to digest before stepping into another large transaction. But it was Stephenson who initiated deal talks with Time Warner CEO Jeff Bewkes, brokering the idea at lunch in mid-August at the Time Warner office in New York.
The talks had a “gravity” to them, Stephenson said. “As we began to talk, the speed and urgency was apparent. After the second meeting it started to fall into place. We had a lot of late night, difficult negotiations, but we were able to make the deal,” Stephenson said.
For Stephenson, the strategic rationale for the deal is pretty simple — it’s about getting scale in video programming production and maintaining AT&T’s dividend. Knowing the viewing habits of the 25 million DirecTV customers gives AT&T an advantage in terms of appealing to what people like. Stephenson said this opens up a shot at more ad revenue, especially as AT&T moves into video streaming with the introduction of an online service, DirecTV Now, in the coming months.
“I’ll be honest, you can’t go through life making decisions and wondering how you will be judged,” Stephenson said. “You make decision on what’s right, right now. History will take care of itself. It’s not something I spend any mental cycles thinking about.”
As for Stephenson’s Slim-inspired list? He’s still checking it all the time.