Raymond James: AT&T To Suffer Extended Overhang From DOJ Appeal

The U.S. Department of Justice filed to appeal its loss in the AT&T Inc. T-Time Warner merger case late Thursday, and the stock continued to trade down 2 percent Friday.

What Happened

The government appealed AT&T's June victory in the U.S. District Court in Washington , D.C. and did not specify the grounds on which it will challenge the unconditional merger approval.

AT&T CEO Randall Stephenson said Friday he was unconcerned.

“At the end of the day the law was on our side," Stephenson said on CNBC. "We feel good about where we are and we think the appeal court will look at the merits of the law. We think the likelihood of this thing being reversed or overturned is really remote.”

Why It's Important

Raymond James concurred with Stephenson's sentiment but regarded the appeal as a “frustrating delay.”

“We believe the government’s original case was as ‘sharp as a bowling ball,’ and the court got it correct in ruling for AT&T,” analyst Frank Louthan said in a note.

“The idea that AT&T would harm itself attempting to drive higher rates and subscriber levels in the face of significant and growing OTT competition for video is absurd, in our view," the analyst said. (See Louthan's track record here.) 

Louthan projects another legal victory for AT&T but anticipates significant overhang that suppresses share value throughout the six-month appeal process. He called the event a negative stock catalyst and downgraded AT&T from Outperform to Market Perform on the news. 

What's Next

The case could affect the auction for Twenty-First Century Fox Inc FOXA by increasing the risk of a Comcast Corporation CMCSA antitrust suit and thereby decreasing the appeal of the suitor.

Related Links:

The US Vs. AT&T-Time Warner: Inside The M&A Trial Of The Decade

This Time Warner Analyst Isn't Concerned By DoJ Challenge Of AT&T Deal

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