AT&T’s odds heading into the DOJ’s Time Warner trial


AT&T has a little more than three weeks before it is due in court on March 19 over the U.S. Justice Department’s challenge to the proposed Time Warner acquisition, and AT&T’s odds of winning aren’t overwhelming.

In a research note, Wells Fargo said Paul Young of the firm’s risk arbitrage team said the market is pricing in a deal probability of 35% to 40%, or slightly worse odds than a coin flip.

Wells Fargo analyst Jennifer Fritzsche—who estimates a decision in the trial could come by late April or early May, after the two-week trial and another two to three weeks for Judge Richard Leon to render his decision—said there’s some hope for AT&T. She noted Leon’s decision to not allow AT&T to use selective enforcement as a defense and to require the defense produce documents regarding communications between the White House and the DOJ were not good news for AT&T. But she pointed toward some wording in Leon’s decision that seemed encouraging.

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“Specifically, Judge Leon noted ‘… history belies the notion that this action is the first and only time the Government [DOJ] has found an antitrust problem with a proposed vertical merger or insisted on a structural remedy as a condition to settlement … while it may indeed, be a rare breed of horse, it is not exactly a unicorn.’ Last we checked—Unicorns are harder to find than horses,” wrote Fritzsche.

Beyond the implications of the trial, Fritzsche said AT&T is still poised for positive results in the near term even if it doesn’t get to buy Time Warner.

“While we understand the focus now is on TWX and resolution there—recall, over 40% of T’s current revenue is in the enterprise segment (both fixed and wireless). T’s commentary on business spending was encouraging on its Q4 call. This has been echoed by others in the supply chain as well. Put simply, if tax reform benefits indeed lead to my business spending—T is well positioned to see top-line trends accelerate—with or without TWX in the fold,” wrote Fritzsche.

MoffettNathanson analyst Michael Nathanson, who also puts odds on AT&T winning the trial at about 50/50, says Time Warner has reason to be confident moving forward even if it’s not as part of AT&T. After upgrading Time Warner to buy from neutral based on upside as a standalone company, Nathanson reiterated the support after Time Warner’s most recent earnings earlier this month.

“If nothing else, this morning’s release (specifically, the 2018 guidance) gives us increased confidence that fundamentals at all three of Time Warner’s business units remain strong,” wrote Nathanson.