Rumors: AT&T acquires Akamai

According to Seeking Alpha, there are rumors flying around that AT&T might acquire Akamai. AT&T is the largest telco in the US with annual revenues of $127B, a net income of $7.2B, and a market cap of $180B. Akamai generates $1.37B in annual revenue, and has a market cap of $8B. Looking at these figures, we know that AT&T is large enough to snap up Akamai if it chooses to do so.

In this post, let’s evaluate the outcome of why I think it won’t happen. If AT&T acquires Akamai, it will have to pony up a premium above its current market cap. Let’s say the acquisition price plus premium is between $12B to $15B. Even for AT&T, this is a big chunk of money. The acquisition is fraught with risk. If AT&T acquires Akamai and the merger doesn’t pan out, heads will roll. On top of that, AT&T will write off billions.

Also, let’s keep in mind that AT&T tried its hand in the CDN business several times and didn’t quite make it. If they couldn’t manage creating their own CDN, what makes them think they can handle a project that is five times more complicated. Keeping the reseller agreement in place with Akamai is the easiest thing to do. That only costs $100M or less per year.

What is one of the reasons the marriage between AT&T and Akamai won’t work? The biggest challenge is cultural integration. Akamai is an extremely innovative company with the Silicon Valley mentality throughout the employee ranks. We can throw in Akamai with the same bunch as Facebook, Snapchat, Aryaka Networks and Google. AT&T, on the flip side, is more like IBM, HP, and Dell.

If AT&T really wants to get into the CDN business, they should just buy an existing smaller CDN for $50M or less. Then, pay the employees enough money for them to stick around for three years, while AT&T rolls out the CDN operations into their infrastructure. Then if it doesn’t pan out, the $50M will be just a drop in the bucket for them.