AT&T Unlikely To See Competition In Its Bid For Time Warner

AT&T Inc. T has proposed an acquisition of Time Warner Inc TWX for $107.50 per share

Wunderlich’s Matthew Harrigan mentioned that the bid was in-line with expectations of Time Warner’s 2017 public market upside, implying that “unless the deal is disruptive to TWX's creative culture, it is at least a "push" for Ma Bell.”

AT&T’s management believe the deal would be manageable in the context of the company’s capital structure and dividends, which also implies that the market is undervaluing the free cash flow generation and potential long-term growth, which is likely to at least be in line with the overall S&P 500.

Related Link: Credit Suisse Downgrades Time Warner Citing Valuation Following Offer From AT&T

Regulatory Risk

Harrigan believes that “large mergers, especially involving media content and distribution, have heavily politicized approval processes.”

The analyst expressed skepticism regarding D.C.'s posture on the Comcast Corporation CMCSA and Time Warner Cable Inc TWC merger, saying that “Ma Bell has even more formidable national video and mobile distribution – especially with the advent of 5G and interim "4.5G."”

Accretion From The Deal

Harrigan believes AT&T is well positioned for 4K with the favorable topology of DIRECTV DTV and its wireless capabilities, which are likely to drive innovation in short-form programming, integrated with social media.

The analyst believes the merger of Time Warner with AT&T would lead to “modest” synergies of $1 billion, and become “moderately accretive” to the adjusted EPS and free cash flow per share within a year post closing.

Harrigan maintained a Buy rating on Time Warner, with a price target of $106

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