This afternoon’s highly anticipated court decision will determine
the fate of Time Warmer (TWX 95.49, -0.68, -0.71%) and have huge implications across the
U.S. District Court Judge Richard Leon will give his ruling this afternoon around 4:00 PM ET on the Department of Justice's (DOJ) attempt to block AT&T's (T) acquisition of Time Warner (TWX).
The general consensus is that the DOJ's case was fairly weak, and AT&T will be allowed to acquire Time Warner, but any conditions could be important. Comcast's prior acquisition of NBCU with conditions would seem to set a precedent allowing the telco giant to delve further into content.
AT&T initially announced its acquisition of Time Warner on October 22, 2016. Time Warner shareholders stand to receive $53.75 in cash, plus 1.437 shares of AT&T (because T stock is below $37.41/share), so the spread, or discount to the acquisition price, is currently ~7%. The deal will close rather quickly if AT&T wins the case.
If judge Richard Leon rules in favor of the DOJ, there may not be much downside in TWX shares, currently trading at 12x EPS or 10x EBITDA. Time Warner owns Turner Networks (including CNN, TBS and TNT), Warner Brothers studio, and HBO.
The content arms race is fully underway as technology companies like Netflix, Facebook, and Amazon disrupt the traditional media space.
21st Century Fox (FOXA) agreed to sell most of its non-core assets to Disney (DIS) for $52 bln in stock six months ago. That represented a ~12x EBITDA multiple. Since then, we have learned that Fox previously rejected an offer from Comcast.
If AT&T wins its case against the DOJ, Comcast (CMCSA) is reportedly expected to bid ~$60 bln in cash for the Fox assets that include international pay-tv assets, US regional sports networks, and a majority stake in Hulu. An AT&T victory would lower the regulatory burden for Comcast.
Therefore, this afternoon's court ruling will have a profound impact on the media landscape going forward.
- OUR VIEW
- LEARNING CENTER