AT&T and Time Warner’s $85 billion corporate marriage could be closing sooner than the end of the year, according to Wells Fargo analyst Jennifer Fritzsche.
“Brazil is reportedly expected to approve the deal during a 10/18 regulatory meeting, if not sooner, and we believe the U.S. approval will follow in short order. Checks would imply discussions around concessions are now happening. While we do not know what is included in these negotiations, the fact that this is a vertical merger should help the combined company's cause,” wrote Fritzsche in a research note.
Last month, John Stankey, senior executive vice president of AT&T/Time Warner Merger Integration Planning, said that the companies are down to Brazil and the U.S. as the approvals needed to finalize the deal.
“We don’t see anything that’s troublesome or problematic,” Stankey said, adding that AT&T is still anticipating the deal will close by the end of the year but if it closes sooner, the companies are ready to go. “We’re going to come out hot and hard.”
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With approval reportedly wrapping up in the short-term, Fritzsche turned her attention toward AT&T post-merger and the unique content distribution opportunity over mobile and traditional pay TV that the combined company will have.
“This multi-tentacle distribution makes it unique in a crowded field, in our view. One benefit that we believe is underappreciated by the Street is T's much improved advertising platform—post TWX. We would expect advertising and the opportunity there to become a larger part of the company's talking points post deal close,” wrote Fritzsche.
Although Wells Fargo was cautious to note it’s not changing its estimates for AT&T at this time, it offered up a pro forma model that hypothesizes an 8% upside from AT&T’s Oct. 10 price of $38.50 per share, based on a “9.0x '18 EBITDA multiple to TWX (2.5x discount to multiple T paid), 7.3x to Communications segment and a 3.0x multiple to the International."
“We acknowledge that media multiples have contracted since the T/TWX deal was announced, but believe a weighted average multiple of 9.0x for TWX is fair, in our view,” the firm wrote.