Oct 29, 2016 06:34 AM EDT

Is AT&T Making a Huge Mistake by Acquiring Time Warner?

A merger of two companies through direct sale or purchase agreement usually ends up with a bigger and better resultant company. This was probably in the mind of AT&T executives when they proposed to purchase Time Warner at $100 billion.

AT&T was hoping that some synergistic combination of technology and resources will bring it to new heights in the telecommunications and entertainment business. There are many analysts who do not agree to this proposition.

Mitch Zachs, president of Zacks Investment Management, is one of them. Significant is the fact that Zachs, aside from managing $5 billion worth of stocks owned by known capitalists, it also owns AT&T stocks worth $60 million.

Zacks explains why he is not completely convinced of the reasoning justifying AT&T's purchase of Time Warner.

He believes that AT&T's purchasing price was much higher than what any other interested company was willing to buy. This means that costs are likely to be high, resulting in an urgent need to find additional revenue or cut costs by reshuffling resources among the various units comprising the resultant company.

Finding the right synergy between the HBO and Direct TV regarding integration and marketing makes solutions extremely difficult to attain. These known difficulties are what deter companies from entering into large mergers.

Instead of a merger, it would have been better cost-wise if AT&T secured a license from Time Warner instead of buying the whole lot.

When the AT&T deal was in the making, word leaked that the giant telecom company was purchasing Time Warner. Subsequently, shares of the media conglomerate went up, and the shares of the telephone utility went down, paving the way for the acquisition of Time Warner a higher price

Many analysts still believe that the combined company has a chance to become profitable and well-managed. It is really hard to predict what visual content the market go for once new forms are created by updated technology.

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