The antitrust lawsuit filed against AT&T Inc. has been one of the most closely watched court cases in decades. Following AT&T’s [NYSE: T] bid to purchase Time Warner [NYSE: TWX] in 2016, the U.S. Justice department quickly filed an antitrust lawsuit over the acquisition, on the basis that the merger would “greatly harm American consumers”.
However, on June 12, 2018, District Judge Richard J. Leon ruled in favour of AT&T, thus allowing the acquisition to go ahead with- surprisingly -no conditions or remedies. This win for the company has made investors even more eager for investment opportunities for new acquisitions. The market sentiment for the telecommunications and media industries has driven up stock value of companies like Discovery Inc. by 4.7 percent amid speculations about it being the next target. The decision positively impacted other media houses like Comcast, Disney and Fox, whom all saw a stock boost as a result. Additionally, Aetna’s shares jumped 4 percent after hours, and 21st Century Fox’s shares rose by more than 7 percent.
According to Ed Black, President of the Computer and Communications Industry Association, the merger has set a precedent for more to come in the future. People are now incentivised to act upon acquisitions that they might have been considering previously. Comcast has submitted a bid for 21st Century Fox set of USD$65 billion, which is higher than the USD$52 billion bid proposed by Walt Disney [NYSE: DIS].
While we expect a resubmission of the lawsuit, a loss for AT&T and Time Warner will no doubt usher a new era of government scrutiny over so-called vertical mergers and halt attempts by companies like Disney, Fox and Comcast to announce their megadeals. This decision could also exert more pressure on companies like Amazon, Netflix and Google’s YouTube, which have been competing with traditional media companies.
What exactly does this ruling mean for AT&T?
The telecom powerhouse will finally have a sizable portion of the entertainment industry. They will now handle the programming of popular media franchises such as Game of Thrones, the Harry Potter movie franchise, and CNN – as well as the infrastructure that delivers that content to the public.
Shares of AT&T fell while Time Warner stock rose as is typical during a takeover. AT&T’s stock fell as much as 3 percent, bringing its dividend yield to 6 percent and Time Warner shares were up as much as 5.3 percent to more than USD$100.00 per share in after-hours trading Tuesday.
Our analysts believe that the share price of AT&T represents the level of uncertainty that the market holds since the company will be undertaking the massive debt that comes with the acquisition of Time Warner with its long-term debt rising from $134 billion to more than $175 billion.
It is crucial to keep an eye on how the stock prices for both parties’ progress in the coming two weeks, as the deal is set to close by June 20, 2018, or AT&T will incur a charge of USD$500 million. With the recent drop in the value of AT&T shares, investors might see this as a viable buying opportunity as they anticipate an upward trend once the merger has settled. Just as the price of Time Warner is rising, AT&T will soon realise an appreciation of their share price once they start to enjoy the profits from their latest investment.
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