Markets Don’t Seem Optimistic That AT&T Time Warner Deal Will Go Through

Last Saturday, AT&T (NYSE:T) announced that it had agreed to acquire media behemoth Time Warner (NYSE:TWX) for about $85 billion, in a cash and stock deal, that it expects to close before the end of 2017.  However, there is skepticism that the deal can go through and this is probably with good reason. Firstly, synergies appear to be limited and analysts are not entirely convinced about the strategic benefits of integrating media and distribution. More importantly, the regulatory hurdles are expected to be significant, considering Washington’s recent aversion to mega-mergers. The deal will be vetted by the next presidential administration and Republican candidate Donald Trump and Democratic vice-presidential candidate Tim Kaine have both come out against the deal.

See our complete analysis for AT&T here

AT&T’s offer is valued at $107.50 per Time Warner share, marking a $28 premium since last Thursday’s closing price of $79.50 (reports of the deal emerged on Friday). However, Time Warner stock closed at $86.70 in Monday’s trading, rising by just $7.20 since reports of the deal emerged. This implies that the ratio of the actual appreciation of TWX stock to the premium offered stands at just about 26%. While this may not be a perfect measure of the deal’s probability of success (the long time frame to closure and the 50% stock component also influence the discount), it should give investors a fair indicator that the markets are not very optimistic that it will go through. The arbitrage spread of the deal, which stands at about 24%, is also wider than five other recent deals that were either not approved by regulators or were withdraw.

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