AT&T, Time Warner Shares Drop Amid Investor Skepticism--update
October 24 2016 - 1:42PM
Dow Jones News
By Thomas Gryta
AT&T Inc. can add Wall Street to the list of parties
skeptical of its $85.4 billion deal to buy Time Warner Inc.
Shares of Time Warner fell 2.4% to $87.36, below AT&T's
offer of $107.50 a share, while shares of AT&T decreased 1.6%
to $36.90 in midday trading.
"There is a litany of things to worry about," said analyst Craig
Moffett with MoffettNathanson. "The deal faces a steep uphill climb
in Washington, and it obviously isn't helped by the fact that both
the Republicans and the Democrats have now come out against
it."
After the announcement of the transaction over the weekend,
lawmakers, media rivals, and politicians -- including Republican
presidential nominee Donald Trump and Democratic vice presidential
nominee Tim Kaine -- came out against the deal, calling for intense
regulatory review over concerns that it could hurt consumers and
concentrate too much media influence in one company.
Positioning the deal as the marriage of Time Warner's robust
content lineup with the carrier's millions of wireless and pay
television subscribers, AT&T Chief Executive Randall Stephenson
has argued that as a vertical combination the deal won't trip some
of the antitrust triggers at the Justice Department.
AT&T anticipates "that the regulators may have some issues
that they want to deal with on this, there may be conditions, but
we're convinced that these type of issues can be handled with
conditions," Mr. Stephenson told analysts Monday.
But the industrial logic of a vertical deal doesn't win over
Wall Street.
"We historically have not believed in the strategic benefits of
vertical integration," Citibank analyst Jason Bazinet wrote in a
note to clients. He cast doubt on the idea that owning a fixed or
mobile network provides media companies with better data to
customize their content, along with new advertising and
distribution opportunities beyond the traditional pay-TV model.
AT&T's Mr. Stephenson said that owning content would make it
easier for the carrier to adapt to various platforms quickly in a
way that is time-consuming and difficult in a partnership
structure.
"It's slow, it's painful, just the contracting itself takes a
lot of time whereas when it's completely owned, you just move a lot
faster," he said Monday.
Analysts note that many of the attractive aspects of owning
content -- such as keeping it out of the hands of other
distributors or giving it free distribution -- would be barred by
regulators.
Wells Fargo analyst Jennifer Fritzsche said the deal should give
AT&T leverage against competitors like Comcast Corp., along
with Amazon.com Inc. and other over-the-top players who own
content.
Wall Street is also taking a hard look at other aspects of the
deal from how it swells the carrier's already large debt load, to
how it could take resources away from its wireless network and
create a distraction, while it is still integrating
satellite-television provider DirecTV, which it bought for nearly
$50 billion a year ago.
AT&T expects to be able to wring out $1 billion of cost
savings after the merger. Mr. Stephenson noted Monday that it was
ahead of its $2.5 billion cost-savings plan on DirecTV.
The deal, which includes $40 billion of bridge loans, would make
AT&T, the largest nonfinancial corporate issuer of
dollar-denominated debt, among the most heavily indebted companies.
It already has about $119 billion in net debt -- roughly double
what it was five years ago.
Moody's Investors Service said it put AT&T on review for
downgrade but said that any downward move would be only one
notch.
AT&T has said that it expects to preserve its
investment-grade rating.
"AT&T has a very sound balance sheet and our cash generation
is strong," a company spokesman said Sunday.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
October 24, 2016 13:27 ET (17:27 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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