Will The AT&T Time Warner Deal Go Through?

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AT&T’s (NYSE:T) planned acquisition of Time Warner (NYSE:TWX) appears to be facing some roadblocks in the final stages of the approval process, with U.S. antitrust regulators apparently demanding that the company divest Turner Broadcasting (the parent company of CNN), or the DirecTV satellite TV operations which it acquired two years ago, in order to gain approval for the $85.4 billion deal.  The developments are somewhat unexpected, as AT&T was fairly confident about obtaining approval without any major asset sales, as the deal concerned two companies that operate in different industries. Time Warner’s stock declined from levels of about $100 at the end of October, to about $87 on Thursday, as the markets priced in the mounting regulatory risks.

We have a $42 price estimate for AT&T, which is 25% ahead of the current market price.

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The AT&T- Time Warner merger has been a subject of political interest since it was announced back in October 2016, with Donald Trump vowing on the campaign trail that he would block a deal. While the administration has denied that the President is involved in the proceedings, anti-trust regulators could still try to oppose the deal on a few grounds, citing the vertical integration of distribution and content. For instance, regulators could argue that AT&T might withhold Turner channels (CNN’s parent) from other rival distributors, or give its channels preference over competitors on its distribution channels. Moreover, regulators could try to build a case that DirecTV could have too much control over the distribution of content, giving AT&T’s own media properties preference over others. That said, antitrust experts believe that regulators could find it difficult to block the deal, and AT&T’s CEO has indicated that it would not divest a major business to win regulatory approval, noting that the company was willing to go to court to see the deal through.

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