The AT&T-Time Warner Deal Is Starting To Raise Eyebrows

Loop Capital Markets said in a research note released Tuesday that skepticism abounds regarding the closure of AT&T Inc.T's proposed buyout of Time Warner Inc TWX.

Analyst David Miller said there is increased uncertainty over whether regulators will give their nod to the deal, especially the Federal Communication Commission (FCC) and the Department of Justice (DoJ). The skepticism, according to the analyst, led to a 3.2 percent slump in Time Warner stock at Monday's open.

Loop Capital Markets sees a myriad of conditions being imposed by regulators given the size of the deal. That said, the firm believes there might not be opposition to the vertical merger being contemplated, going by the precedence of successful completion of vertical deals in the media space.

Related Link: Survey: 84% Of Investors Expect AT&T-Time Warner Deal Approval

The firm also noted that AT&T expressed concerns in Monday's call about the difficulty involved in creating a real, commercial, skinny bundle for channels for its DirecTV-Now OTT product. With AT&T gaining control over the value chain, the firm believes it can now innovate around a brand-new OTT product. Another core reason for AT&T doing the deal is the prolific nature of Time Warner's TV production business, the firm noted.

As such, the firm maintains it Buy rating and $107.50 price target for the shares of Time Warner.

At the time of writing, shares of AT&T were up 0.35 percent at $36.99, while those of Time Warner were up 0.65 percent at $87.30.

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