After a weekslong court battle with the Justice Department over AT&T’s proposed $85 billion acquisition of Time Warner, AT&T’s odds of winning the fight have improved.
Although he is remaining somewhat cautious, MoffettNathanson analyst Craig Moffett said investors can likely relax a little about what AT&T’s Plan B would be if it failed to acquire Time Warner.
“By most accounts, however, the trial has gone very well for AT&T. For the record, we’re still calling it a toss-up, but the general consensus is that we’re being too cautious; most observers seem to give AT&T 75%-or-better odds of winning in Court,” Moffett wrote in a research note. To be clear, Moffett still gives AT&T 50/50 odds of winning.
According to Vanity Fair, which spoke with sources from AT&T and Time Warner, AT&T’s starting to look like a shoo-in. “I think AT&T is killing them,” an executive told the publication. “If you’re AT&T, all signs seem to be pointing in the direction of: you’re winning.”
M&A attorney Valerie Ford Jacob added to that, saying that it’s been an uphill battle for the DOJ to prove the vertical merger has real antitrust consequences, and that the agency has had a tough time doing that.
Indeed, this week one of the DOJ’s key witnesses slightly walked back some evidence to that point. According to The Washington Post, Carl Shapiro, an economist at the University of California at Berkeley, admitted during cross-examination that an AT&T-Time Warner merger could cost pay-TV customers about 13 cents more on their monthly bills, down from the minimum 27 cents he said previously.
With Time Warner just about in the bag, analysts are starting to look forward.
Moffett said that while it is perhaps a bit early to call the acquisition a done deal, he looked ahead a bit and warned that cable network affiliate fees and advertising aren’t growing like they used to and that it could lead to Time Warner being less transformative to AT&T’s business than hoped.
Moffett’s analysis comes as Time Warner reported first-quarter results that, despite increases in overall revenues, saw across the board income declines at Turner, HBO and Warner Bros. as programming costs outweighed subscription and advertising growth.
For now, AT&T is playing it close to the vest and focusing its Time Warner comments on getting past the trial.
“Both sides are wrapping up their cases and are now preparing for closing arguments on April 30. After that, we'll wait for the court's ruling. Based on the court's determination, we stand ready to close. Funding is in place, even after we settle the special mandatory redemption bonds. There's not much more we can add at this point,” said AT&T CFO John Stephens during Wednesday’s earnings call, according to a Seeking Alpha transcript.
This article has been updated to clarify Craig Moffett's statement about AT&T's odds of winning the court case.