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The Premium AT&T Offered To Time Warner Shareholders Should Sustain Itself Thru The Regulatory Process

T, CMCSA | October 24, 2016

AT&T Inc. (NYSE: T)'s takeover of Time Warner Inc (NYSE: TWX) should face increased regulatory scrutiny. However, Barrington Research said AT&T’s premium to Time Warner shareholders “seems appropriate to sustain itself even within the context of a potentially lengthy regulatory approval process.”

AT&T said it would buy Time Warner in a cash and stock deal for $107.50 per share, which represents a premium of 20 percent over Time Warner’s Friday close. Including debt, the deal value stands at $108.7 billion.

The deal combines Time Warner's vast library of content of HBO, TBS/TNT and Warner Bros. with AT&T's extensive distribution network.

As is widely anticipated, he DoJ and FCC scrutiny are likely to be significant obstacles ahead of closing, expected in late 2017.

“It would seem likely that the conditions required of Comcast and NBC would be at the least the starting point for approval of the acquisition of TWX by AT&T. The stringency of the conditions could have a material impact on the value of the post-combination company,” analyst James Goss wrote in a note.

Goos noted that the Comcast-NBC (Comcast Corporation (NASDAQ: CMCSA)) acquisition took a long time (announced in December 2009, receiving approval in January 2011) to get the regulators nod. Post approval, among others, regulators imposed number of restrictions, including availability of programs to online video providers and not curbing access to online video through its broadband network.

Meanwhile, another high-profile merger of Charter Communications and Time Warner Cable took about a year to complete regulatory review.

Goss, who has an Outperform rating on Time Warner stock, revised the target price to $99 to reflect the stage of the year and the timing required for regulatory approvals.

“It might be reasonable to use the buyout offer price of $107.50 as the true target and monitor trading in TWX relative to this benchmark. While a competing bid from another tech company is possible, we feel the current bid well reflects the value of TWX while enabling shareholders to participate in further upside,” Goss concluded.

At last check, AT&T was down 1.63 percent at $36.88, and Time Warner was down 2.65 percent at $87.11.

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