On Monday investors showed skepticism of the $85.4 billion acquisition of Time Warner Inc by AT&T by lowering shares of both companies. On a conference call, AT&T Inc Chief Executive Randall Stephenson told investors that the deal; which is the world’s largest in 2016, is expected to close by the end of 2017. AT&T’s Randall Stephenson also stated he expects the transaction will receive regulatory clearances.
“While regulators will often times have concerns with vertical integrations, those are always remedied by conditions imposed on the merger, so that’s how we envision this one to play out,” Stephenson told CNBC in an interview.
Despite Randall’s attempt in reassuring investors; shares of both AT&T and Time Warner dropped approximately 2% in morning trade on the New York Stock Exchange.
Wall Street analysts implied Time Warner shares may face challenges due to the regulatory obstacles imposed by the U.S. Federal Communications Commission.
“From a regulatory perspective we believe management are relying heavily on the argument that vertical mergers have historically been approved, yet with so much up in the air in Washington, we find this riskier than would be typical,” said Cowen & Co analyst Colby Synesael.”
If this deal receives FCC approval, AT&T will have control of cable TV channels HBO and CNN as well as film studio Warner Bros and other coveted assets that will significantly alter the media landscape.
On Saturday Dallas-based AT&T said the U.S. Department of Justice would need to approve this deal. Both companies were determining if any Time Warner U.S. Federal Communications Commission licenses would transfer to AT&T as part of the deal considering any such transfers would require the department’s approval.
Time Warner only has one FCC-regulated broadcast station, WPCH-TV in Atlanta; which as mentioned by several analyst, could be sold in an attempt to avoid a formal FCC review.
The deal, announced just over two weeks before the Nov. 8 U.S. election, generated skepticism among both Republicans and Democrats on Sunday.
“We are unprepared at this point to assign anything higher than a 50/50 probability of deal approval,” wrote MoffettNathanson Research in a report, downgrading Time Warner to “neutral” but raising its target price.
Similarly, Credit Suisse lowered its rating on Time Warner to “neutral” from “outperform”, but raised its price as well.
“We believe the value of the offer is full on current earnings and cash flow; that the probability of a counter offer from a third party is low; and that the transaction will face lengthy scrutiny from regulators,” Omar Sheikh, a Credit Suisse analyst wrote in a report. “We now see better opportunities elsewhere in U.S. Media.”