On Saturday, AT&T (T) and Time Warner (TWX) announced a deal in which AT&T will buy the media company for $85.4 billion, morphing AT&T into a media heavy hitter. Adding Time Warner's debt brings the total transaction value to $108.7 billion. AT&T already has $119 billion in net debt, and it estimates that by the end of the first year after close, its net debt to will be 2.5 times its adjusted EBITDA.

The deal is structured as half cash and half stock. According to the official press release, AT&T has agreed to pay $107.50 a share, comprised of $53.75 per share in cash and $53.75 per share in AT&T stock. This is by far the largest deal the media industry has seen in recent years and up there as one of the largest deals ever in the U.S. (Read more: The Biggest Mergers & Acquisitions In The U.S.)

AT&T’s Chief Executive Randall Stephenson will head the combined company while Time Warner Chief Executive Jeff Bewkes is expected to stay on through the close of the acquisition. During a conference call, Stephenson said the talent at Time Warner is an important part of the deal, and he dismissed rumors that former Fox executive Peter Chernin will take Bewkes's place.

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Leo Hindery on ATT, Time Warner

For AT&T, a deal with Time Warner would give it a leading U.S. provider of pay-TV and internet service as well as popular content from the likes of HBO and access to sports including NBA basketball. AT&T has been keen to add more content and original programming as it gears up to launch its DirecTV Now streaming content service later this year. It’s also seen as a direct response to Verizon which is in the process of acquiring Yahoo in a $4.8 billion deal to get access to Yahoo’s Internet and content and bring it under one roof with AOL. 

“This is 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,” said Randall Stephenson, AT&T chairman and CEO. “Premium content always wins. It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen. We’ll have the world’s best premium content with the networks to deliver it to every screen. A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that," he said.

The move also comes at a time when the wireless market in the U.S. is becoming saturated and carriers are looking for new areas of growth. According to the press release, the combined company's goal will be to "disrupt the traditional entertainment model and push the boundaries on mobile content availability for the benefit of customers" and develop new forms of original content for mobile and social platforms.The deal is the largest between a telecom and a media company since Comcast bought NBC Universal and will create a huge competitor to that tie up. (See also, What Does Comcast Own ?)

The Wall Street Journal noted that the deal is likely going to face intense scrutiny from regulators and isn’t likely to close until the end of next year.

In a recent research report, Barclays analysts Kannan Venkateshwar and Amir Rozwadowski argued that a main reason for a deal between the two is to give AT&T access to content and scale. The analysts noted that Time Warner is one of the few media companies that doesn't have supervoting shares, which means there's the potential for a deal to provide “immediate industry scale.” What’s more, the analysts said that during a recent visit to AT&T, management there acknowledges the market is moving in a way in which offering differentiated content is beneficial. “While we currently believe the carrier has its plate full, over time we could see the value proposition provided by moving into the content arena,” the analysts wrote.