Worry that regulators will block AT&T’s $85 billion acquisition of Time Warner gives investors with backbone the opportunity for a big windfall.
The stocks of both companies are underperforming despite the benefits that the deal, announced on Oct. 22, gives both companies. AT&T, a telecommunications company, would gain access to a new revenue stream and customer base while Time Warner gains access to cutting-edge distribution options.
AT&T’s $107.50 per share offer, a total sum of $85.4 billion, could bring a profit of more than 20 percent to any Time Warner stockholder today since the stock closed Wednesday, Nov. 2.
Time Warner price shows that investors currently give the deal a 31 percent chance of going through, according to Barclays analysts.
But experts at Macquarie Capital give the deal a 85 to 90 percent chance of approval, pointing to a history of similar deals, including Comcast and NBC, being approved.
“Whenever you talk about two big companies coming together, there’s always a headline that bigger is dangerous,” said Amy Yong, an analyst at Macquarie Capital. “If you look at the facts, there really is nothing anti-competitive about this deal.”
This is not the sentiment on the campaign trail where presidential candidates have voiced their opposition to the deal.
Republican Donald Trump said, “It’s too much concentration of power in the hands of too few,” while Democratic Hillary Clinton proposed scrutinizing its details more closely.
“If this doesn’t go through, it’s pure politics,” said Jim Nail, a principal analyst at Forrester Research specializing in business to consumer marketing professionals. “On its merits, I don’t see any issues, especially considering that AT&T and DirecTV was potentially a bigger conflict of interest.”
Sentiment among analysts is that the deal may take a beating on the campaign trail, but that oncer the tough talk of campaign season is over, federal regulators will not have enough proof to move forward with an antitrust case.
“The DirecTV acquisition received regulatory approval within three months while Comcast/NBCU took 14 months, driven by the complexity of NBCU’s assets and the need for FCC review,” said analyst Amy Yong.
If the deal can survive scrutiny, Yong believes AT&T will become a mobile video disruptor given the combination of Time Warner’s content with AT&T’s mobile base and linear TV outlet, DirecTV.
“When you marry all those three things together, it gives them enough to innovate on mobile video, far more than any of their peers,” Yong said.
Laura Martin, a Needham financial advisor, says it still remains to be seen if the deal will pass regulation, pending the presidential election on November 8.
“We will see if AT&T can convince regulators that they will do more good than harm for consumers if they were to own both DirecTV and Time Warner,” Martin said.
Photo: Mike Mozart via Flickr