This Time Warner Analyst Isn't Concerned By DoJ Challenge Of AT&T Deal

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The Department of Justice cited antitrust concerns in its Monday lawsuit to block AT&T Inc. T’s Time Warner Inc TWX acquisition.

But some on the Street consider the claims groundless and the regulatory hurdle surmountable.

The Rating

Rosenblatt Securities analyst Alan Gould maintains a Buy rating on Time Warner with a $103 price target.

The Thesis

Gould said he sees two possible outcomes from the impending legal battle, each of which would result in higher Time Warner valuation. (See Gould's track record here.) 

In the first, AT&T defends its case and buys Time Warner at its $103 offer price.

“While we are not lawyers or antitrust experts, we believe it will be a challenge for the DOJ to prove these [antitrust] claims, and the burden of proof is on the government,” Gould said in a Tuesday note.

In his estimation, a few factors lie in AT&T’s favor: HBO’s status as a standalone service; the Turner networks’ availability on AT&T, DIRECTV, DIRECTV Now, Sling, Sony Corp (ADR) SNE’s PlayStation Vue and Hulu; and the combined entity’s small market cap relative to Facebook Inc FB, Apple Inc. AAPL and Alphabet Inc GOOGL GOOG.

“Even though the DOJ says it prefers structural remedies, the court could say behavioral remedies are an adequate remedy to ensure competition,” Gould wrote.

In the event that AT&T doesn’t satisfy regulatory concerns before the deal’s April 22 termination date, Gould said he expects Time Warner to pursue a $7 billion share buyback and see its stock organically rise to the mid-$90s.

Price Action

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At the time of publication, Time Warner was trading up $1.32 at $88.82.

Related Links:
AT&T Resists DOJ Order To Divest Time Warner's CNN For Merger Approval
What To Do With Sprint, T-Mobile Now That A Merger's Off The Table

Photo courtesy of Time Warner. 

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Posted In: Analyst ColorPrice TargetReiterationAnalyst RatingsAlan GouldAntitrustDepartment of JusticeRosenblatt Securities
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