Analysts are increasingly skeptical that the Justice Department’s antitrust lawsuit to block an AT&T Inc. (NYSE: T) buyout of Time Warner Inc (TWX) will be successful in stopping the $85 billion deal.
“We believe the department’s case appears weak as it ignores precedent and conveniently ignores the shifting digital nature of the industry,” Raymond James analyst Frank Louthan says. “We believe the case law and significant legal precedent for this deal heavily favor AT&T.”
Following the announcement, a wave of analysts have questioned the Justice Department’s case against AT&T given the vertical nature of the merger. While both AT&T and Time Warner are massive companies, they are not direct competitors. The government has rarely attempted to block these types of vertical mergers.
In its statement issued on Monday, the Justice Department said AT&T would likely “use its control of Time Warner’s popular programming as a weapon to harm competition.”
Rosenblatt Securities analyst Alan Gould says proving the Justice Department’s claims will be difficult since the Turner networks are available on numerous services.
“While we are not lawyers or antitrust experts, we believe it will be a challenge for the DOJ to prove these claims, and the burden of proof is on the government,” Gould says.
The lawsuit also raises concerns among some onlookers because President Donald Trump has been highly critical of CNN’s coverage of his administration, repeatedly calling CNN’s reporting “fake news.” CNN is part of Turner Broadcasting.
In a campaign rally in October 2016, then-candidate Trump called the merger an example of media “power structure” that was suppressing his supporters. He called the merger “a deal we will not approve in my administration.”
Oppenheimer estimates AT&T has a 75 percent chance of winning the trial outright. In addition, analysts at Evercore, Nomura, Cowen Barclays and other firms have said the government faces an uphill battle in court.
News of the lawsuit had a minimal impact on the stock prices of both AT&T and Time Warner on Tuesday.
Investors are already pricing in a certain degree of deal uncertainty. Time Warner stock is currently trading at roughly a 20 percent discount to AT&T’s proposed buyout price.
Gould says Time Warner stock is a buy regardless of whether the merger is completed.
“While we believe [AT&T] has a compelling case to win in the court argument,” Gould says. “Even if it loses we believe…
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