It doesn't matter what Trump thinks or says. It matters what he does, and more importantly, what federal regulators do. Such is the patient suffering of AT&T (NYSE:T). Just what am I talking about here? WE learned today that allegedly Trump has expressed reservations and opposition to the AT&T and Time Warner (NYSE:TWX) deal. Supposedly Trump contended that the merger would concentrate too much power. Perhaps in some respects he is correct, given these are two major media companies, and AT&T has morphed itself into one of the most innovative telecommunications giants on the globe. This move is a power play, no doubt about it. But Trump doesn't have the final say. Regulators do. Can his opposition hurt? It is not a good thing. We would prefer to have the President elects' support for any endeavor we embark on. But this piece isn't about politics. It is about whether the deal stands a chance. And frankly, this $85 billion acquisition does stand a chance, regardless of whatever today's small sell-off on the news of our next President's feelings are on the merger.
Why do I say this? Well, although the noise about Trump's alleged whispers are dominating the headlines, very quietly we also learned today that AT&T may actually be able to avoid having the FCC look at, judge and examine the deal. This would remove a massive obstacle in the process. In a filing we learned that:
"While subject to change, it is currently anticipated that Time Warner will not need to transfer any of its FCC licenses to AT&T in order to continue to conduct its business operations after the closing of the transaction."
When Trump allegedly states he is concerned over too much power, we must assume he has monopoly/anti-trust concerns. However, and this is the key point of this piece, historically the Justice Department does not deny mergers when companies in different sectors/business segments seeks to join. When you factor in that the FCC will not have to review the deal, it makes it all that much more likely. The major question to be asked is whether the deal reduces competition.
I will be frank. The deal reduces competition, in that AT&T's competitors don't get to buy Time Warner. But does the deal make it impossible for competitors to stay in business and compete fairly? While that is open to interpretation and will ultimately be decided on by regulators. The key in all of this is whether licenses have to be transferred. If not then there is no FCC review needed. If they need to transfer licenses, the deal will be so much harder as the process is lengthy and will be expensive. We have seen this roadblock kill deals before. While the deal is ultimately in AT&T's favor, we must remember that the company has been innovating on its own.
While not to distract too much from the issue at hand, if the deal doesn't go through, AT&T is still a buy for all it has done to innovate and secure its future. This is because in my opinion the company has quite simply fundamentally changed in the last three to five years. For a long standing company like AT&T this level of innovation in such a short period of time has been unprecedented. There are a number of purchases it has made, as well as experiments with social media, its Hello Lab project, and many others. Of course the moves it is doing with the DirecTV content on mobile and not only working to be first on 5G technology but the speed with which it is being rolled out is simply mindblowing. AT&T is now a global telecommunications and media company, rather than just a simple "phone" company. The deal with Time Warner is icing on the cake if it goes through. I see it as likely, because the merger would likely open up more models of business that benefit the consumer. AT&T is confident as well, and that bodes well for the deal. Any hints of doubt would be a large red flag.
Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."
Disclosure: I am/we are long T.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.