AT&T – Time Warner Merger Looks Like A Done Deal, Will It Be A Catalyst For AT&T’s Stock?

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AT&T’s (NYSE:T) proposed $85 billion acquisition of Time Warner is increasingly looking like a done deal. The acquisition is likely in the final stages of the review process with the U.S. Justice Department, and both companies have indicated that the deal should close by the end of this year. The markets also appear to be very optimistic about the deal’s prospects, as the merger arbitrage spread has shrunk considerably in recent months. For instance, Time Warner’s stock price has risen to levels of around about $102 currently, just below AT&T’s offer valued at roughly $107.50 per share. The stock was trading at just about $85 after the deal was announced in October last year. AT&T also appears to be in the midst of raising funds for the purchase, selling $22.5 billion of bonds late last month. There’s a possibility that the acquisition could prove to be a catalyst for AT&T’s stock, which has been fairly listless over the last five years, amid low growth and significant competition in its bread-and-butter wireless business.

See Our Complete Analysis For AT&T 

We have a $42 price estimate for AT&T, which is about 10% ahead of the current market price.

The deal would effectively combine AT&T’s wired and wireless distribution platforms with Time Warner’s broad entertainment assets, which include HBO, Warner Brothers and CNN. This could potentially allow AT&T to manage its content costs across its video platforms (DirecTV, DTV Now, U-Verse), while improving its bargaining leverage in acquiring content from other companies. With the internet and mobile devices playing a larger role in content distribution and consumption, the Time Warner deal could put AT&T in a position of strength as the industry evolves. For perspective, Comcast’s stock is up more than 3x post its purchase of media behemoth NBC Universal in 2011. While AT&T and Comcast are very different companies, there remains a possibility that a media deal could change the narrative around AT&T’s stock.

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