How To Trade The Pending AT&T-Time Warner Deal Court Ruling

The U.S. District Court in Washington is set to rule on the AT&T Inc. T–Time Warner Inc TWX merger on June 12. In anticipation, UBS analyst John Hodulik came out with a note predicting how stocks might move based on the ruling.

If The Deal Goes Through...

Then investors should expect shares of both companies to jump in the short-term, but long-term effects will depend on how the two go about integrating.

The deal would also signal a green light for other media and telecom M&A deals. Twenty-First Century Fox Inc FOXA is positioned best, according to Hodulik. The company is fielding bids from Walt Disney Co DIS and Comcast Corporation CMCSA

Although Fox had been set on selling to Disney for quite some time, this seems to no longer be the case according to a Cheddar report. A competitive bidding war could be expected to put pressure on Disney and Comcast shares.

Comcast’s pursuit of Fox could also limit the size of its bid for Sky PLC SKYAY, implying a negative read through for the U.K. media company.

The deal would also be negative for AT&T’s competitors in the telecom sector: Verizon Communications Inc. VZ, Sprint Corp S and T-Mobile Us Inc TMUS.

But With Conditions…

Then the implications for Sky would turn positive. Regulatory hurdles set before the Fox acquisition might encourage Comcast to focus more on international expansion, especially if it seems like the Justice Department would call for it to sell NBC.

Fox shares could be depressed slightly in this case, with only Disney seriously bidding for it.

The impact on the other major horizontal merger up in the air right now, between Sprint and T-Mobile, would be limited.

And If The Deal Is Blocked…

Then expect Time Warner shares to react negatively. Hodulik would expect the impact on AT&T to be neutral, after considering a $500 million break-up fee, potential share buyback and other factors.

An injunction would have a chilling effect on vertical M&A across industries, but still only a limited effect on horizontal mergers like the previously mentioned Sprint–T-Mobile and Disney-Fox deals.

Disney’s prospects might actually be increasingly positive, should Comcast back off and focus on Sky.

Get our full M&A coverage in real-time by signing up for Benzinga Pro.

Related Links:

Department Of Justice Says AT&T-Time Warner Deal May Still Have A Chance

Jefferies: The Fate Of Fox Depends On The AT&T-Time Warner Merger Trial

Image credit: Luismt94 (Own work) [CC BY-SA 4.0 ], via Wikimedia Commons