One of the biggest legal battles in the media industry in 2018 will be the Justice Department’s upcoming antitrust case against the $85 billion proposed merger between AT&T Inc. (NYSE: T) and Time Warner Inc (TWX).
After a recent meeting with AT&T CEO Randall Stephenson, Bank of America analyst David Barden says the company is confident it will close the deal. But in the meantime, he is not yet recommending investors buy AT&T stock.
When pressed about the antitrust trial, which is set to begin on March 19, Stephenson predicted the outcome will be positive for AT&T and its shareholders, although he admitted court rulings left on the hands of a judge can be unpredictable. Up to this point, the Justice Department has been unwilling to negotiate potential structural remedies to its antitrust concerns. Barden says that stance could change depending on how the trial plays out.
“AT&T notes that it has put ‘many remedies on the table’ including structural remedies, which could address all the issues in the DoJ complaint, all of which the DoJ has rebuffed to this point,” Barden says.
Earlier this week, the judge overseeing the trial blocked AT&T’s request for a log of communications between the White House and the Justice Department pertaining to the Time Warner merger. President Donald Trump has been publicly critical of the merger, suggesting the deal could lead to higher prices for customers.
Walt Disney Co. (DIS) and Twenty-First Century Fox Inc (FOXA) will be watching the outcome of the trial closely after Disney acquired most of Fox’s cable TV and movie studio assets in December. The government’s willingness to allow the Disney deal could hinge on how the court rules on the AT&T-Time Warner merger.
Comcast Corp. (CMCSA) is also reportedly interested in Fox’s assets and could become a more aggressive buyer if the Time Warner buyout is allowed.
Given all of the uncertainty surrounding the trial and the high costs associated with building its 5G network, Barden says investors should take a cautious approach to AT&T stock for now.
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