Bank Of America Sees 5 Problems With An AT&T-Time Warner Merger

Time Warner Inc TWX shares are up another 7.9 percent on Friday following reports that AT&T Inc. T could be interested in a buyout. While Time Warner investors are cheering a possible deal, Bank of America analyst Jessica Cohen isn’t convinced of the benefits.
 

According to Cohen, Time Warner could make a valuable asset for a potential buyer, but AT&T may not be the best fit.
 

“TWX’s robust film and television library (via Warner Bros.), international growth (via HBO and Turner), strong brands and franchises (incl. CNN, HBO and DC Comics), recent investment in Hulu (10%) and lack of a controlling shareholder position the company as a scarce, presumably ‘for-sale’ media conglomerate in a marketplace hyper-focused on content acquisition and ownership,” Chen explains.
 

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However, she notes that a deal between AT&T and Time Warner would likely have a significant stock component and might not be optimal for shareholders of either company for several reasons:
1. There are no obvious synergies.

2. An all-stock deal could have significant dilutive consequences.
3. There would certainly be a lengthy, and possible costly, regulatory review process.
4. The FCC could choose to set merger conditions that would offset potential revenue benefits.
5. The merger could lead to asset management difficulties.
 

Chen added that she believes Time Warner wouldn’t entertain bids from any potential buyer for less than around $100/share.
 

Bank of America maintains a Neutral rating on Time Warner, but has upped its price target for the stock from $79 to $94.

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