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What If The Acquisition Of Time Warner Falls Through?

Mar. 05, 2018 3:11 PM ETAT&T Inc. (T)TWX53 Comments


  • The benefits of a combination with Time Warner have been discussed extensively.
  • If the takeover gets blocked, that wouldn't be a big problem for AT&T.
  • The company has several other ways to utilize its vast cash flows and trades at a very inexpensive valuation.

Article thesis

AT&T (NYSE:T) is a solid and reliable income investment trading at a discount. The pending acquisition of Time Warner (TWX) has made some investors anxious, but AT&T looks like a strong investment even if the acquisition doesn't get approved.

Strong cash flows would allow AT&T to return value to its owners in other ways, and deleveraging would be an option as well. As interest rates are rising steadily, that might not be the worst option for AT&T in the long run. Last but not least, AT&T is not dependent on Time Warner for growth going forward, as the company's international expansion and investments in the US are about to pay off.

https://static.seekingalpha.com/uploads/2018/3/2/28873105-15200148391419742.jpgThe Possible Fallout If The Acquisition Gets Blocked

The proposition for AT&T buying Time Warner is pretty clear and has been stated oftentimes. Combining a telecommunications company with a content provider has the potential to generate an entertainment giant. Such a move is not necessary, though, as AT&T is not in a bad position without Time Warner's assets, either.

If the acquisition gets blocked by regulators, the near-term impact on Time Warner's shares would likely be bigger than that on AT&T's shares. Time Warner's shares have been trading at a higher price since the acquisition was announced, AT&T's shares did not rise in the same time frame:

ChartTWX data by YCharts

The market doesn't believe that the acquisition is a reason to buy shares of AT&T, as the stock reacted negatively after the takeover was announced. Time Warner, on the other hand, is trading at a substantially higher price compared to the price shares traded at before the takeover was announced.

A blocked acquisition would also have another impact: If the deal gets blocked by authorities, AT&T has to make a compensatory payment of $500 million

This article was written by

Jonathan Weber profile picture
Jonathan Weber holds an engineering degree and has been active in the stock market and as a freelance analyst for many years. He is an active author on Seeking Alpha since 2014.    
According to Tipranks, Jonathan is among the top 1% of bloggers (as of August 1, 2023). 

Jonathan is interested in income stocks and value stocks primarily but does also follow some growth stocks. 

If you want to reach out to Jonathan, you can send a direct message here on Seeking Alpha.


I work together with Darren McCammon on his Marketplace Service Cash Flow Club.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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Comments (53)

I think ultimately if the deal falls through, someone else will bid for TWX. That said, I think the deal gets approved
So just to set the record straight..........the dow has gained 11000 points since march 2013. T is down .
freestar profile picture
I buy T not only to Swan, but it is my savings account for future buys. I can't get over 5% in the bank!!!
Teutonic Knight profile picture
T stock price is so lame, total boring. I will buy some when it gets hot, some day
I have a at&t celuler phone!
pretty positive review from someone who doesn't own any shares
Jonathan Weber profile picture
So should authors only write about stocks they own?
Just get back to $40 so I can dump this dog with fleas. Much better places for this money.
orenyoosh profile picture
So do You believe is this current price (36.6) a good entering point for T ?
Jonathan Weber profile picture
I believe it is a good entry price for income minded investors.
If the deal is blocked I, as a
shareholder will be very pleased. The company needs to stop looking towards the past and focusing on the future, which means focusing on what consumers and business really want.
Agreed, T has the opportunity with Directvnow to experiment in content creation if they wish. Both Amazon and Netflix believe original content is cheaper than buying or leasing content so the same should be true for T.
I really think this deal will not be blocked, however there will be some asset sales required in a settlement that will be made before or during the trial.
The analysis is fine and good but AT&T's debt is equal its revenues.
TDW has baggage that T does not need. CNN for one.
larrhall profile picture
T is a chugging machine - nothing fancy, but solid. I sold out of it several months ago. Am relatively new to investing in individual stocks, and have learned in the past several months that many of the truisms about high-yielding stocks have merit. Take a MacQuarie that I almost bought - it blew up. Take a PEGI, which I own - down about 20% since I purchased. Will it bounce back? Maybe. Or not.

A stock like ATT and its 5-plus percent yield starts to look better with the experience of the names mentioned above. I still love NRZ, but now realize there are only a limited no of high-yielding stocks to own without some wild risk. So when I sold out of STWD, I looked for something in the 5-6% yield class, and bought some SPG. Live and learn. T has merit.
Around 300 billion in LT debt. This is a slow ticking time BOMB people - wake up.
8158721 profile picture
Bummer, All my 'Mute' buttons are in use. SA could you increase the amount of 'Mute' buttons, please.
Jonathan Weber profile picture
Where do you get the $300 billion figure?
In all the comments you have made NONE have had anything to do with analysis. I believe you are trolling this site..What I don't understand is the CULT like manner in which some people profess the wonders of a stock that has under performed every index and nearly ever major mega-cap stock over the last 15 years.
Joseph Oppenheim Investing profile picture
With interest rates rising, now is the time to reduce debt. I don’t like taking on so much new debt to get away from one’s core competency. Plus, I don’t like the breakup fee. Seems a big lose for T no matter what happens, especially since time is being wasted, time is money, too.

It’s hard making top movies and TV shows. Plus, it costs more to make quality with newcomers like Netflix and Amazon raising the production costs.

No wonder Time Warner wants to be bought out.
Jonathan Weber profile picture
The breakup fee is not very meaningful at just $500 million. I think debt reduction is a good idea as well, they will probably do that even if the merger gets approved.
Put another way, the breakup fee is about .08/share - this does not include the time and expenses incurred from the beginning, not to mention the distraction from running their existing business.
Regardless of outcome, T will be ok. The management team may be feeling a little anxiety though...
Excellent article, JW.
Jonathan Weber profile picture
Glad you enjoyed the article panamerican!
This deal should close as it is clearly a vertical merger. If it doesn't close,blame it on the Moron who had no right to speak about it.
G.B., when he gets sworn peace officers murdered(as did his predecessor), then I'll complain.
T , as of today, and looking at a chart from GS, is up ONE PENNY over the last five years. Sounds like a very exciting future based on past results.......Past results are not indicative of future performance, but management has mismanaged everything they have touched. Oh, for the good old days of monopolistic markets.
achilleus profile picture
Or, it’s up $10 from a different date.
Or, it’s down $10 from yet another date.
Hampton108 profile picture
Yep...definitely a SWAN!!!...

Long: T
probably down
TCG,llc profile picture
The prospects that (T) offers as an investment for inclusion into one's portfolio are quite different than the competitive strategy presented by the acquisition of Time Warner. The advantages of this deal for (T) over its industry competition are important to the company. Similar to the acquisition of cable infrastructure which was later acquired by Comcast (previously a non-factor and indirect competitor) - Time Warner has strategic importance for (T). What if another aspiring competitor for content purchases the assets? Beyond the scope of just traditional telecom products, (T) has eyed this project over others because the higher IRR that it presents. Sure, the company probably has alternate plans if the deal fails (like with the T-Mobile deal) but don't bet on it!
8158721 profile picture
Jonathan Weber, Thank you for your excellent article!! I am now, on your 'follow' list!!
Jonathan Weber profile picture
Glad you liked it! Hope you enjoy my future articles as well!
8158721, so why doesn't he own any?
8158721 profile picture
jimoc, This is his vocation, you can not own them all. I see his article as well written, with solid research. Wish some other T authors, followed suit....
Basit Saliu profile picture
AT&T have an exciting future with or without TWX:

Amazon should purchase TWX. Bezos can use his wealth to control US media . The 1st A in Bezos hands can be weaponized.
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