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Even as Shares Fall, Time Warner Deal Clearances Expected by AT&T CEO

Even as Shares Fall, Time Warner Deal Clearances Expected by AT&T CEO
Even as investors showed skepticism by pushing shares of both companies lower, AT&T Inc Chief Executive Randall Stephenson said that he expects the planned $85.4 billion acquisition of Time Warner Inc to receive regulatory clearances.
He was speaking to investors on Monday when he said this
In a deal that will reshape the media landscape if it receives government approvals, control over cable TV channels HBO and CNN, film studio Warner Bros, and other coveted assets of Time Warner would be gained by AT&T after the company said on Saturday that it had agreed to buy Time Warner for $107.50 per share.
"While regulators will often times have concerns with vertical integrations, those are always remedied by conditions imposed on the merger, so that's how we envision this one to play out," Stephenson told CNBC in an interview.
AT&T told investors on a conference call on Monday that the deal, tipped to be the world's largest in 2016, is expected to close by the end of 2017.
In morning trade on the New York Stock Exchange, shares of Time Warner tumbled 2 percent to $$87.70 and shares of AT&T fell 2.4 percent to $36.58.
The companies were determining which Time Warner U.S. Federal Communications Commission licenses, if any, would transfer to AT&T as part of the deal and the Dallas-based AT&T said on Saturday the deal would need approval of the U.S. Justice Department. Any such transfers would require FCC approval.
Only one FCC-regulated broadcast station, WPCH-TV in Atlanta, is owned by the media giant Time Warner despite its big media footprint. In a bid to try and avoid a formal FCC review, several analysts said that Time Warner could sell the license.
Concerns about the implications of the regulatory challenges facing the deal on Time Warner shares were expressed by Wall Street analysts on Monday.
"From a regulatory perspective we believe management are relying heavily on the argument that vertical mergers have historically been approved, yet with so much up in the air in Washington, we find this riskier than would be typical," said Cowen & Co analyst Colby Synesael.
Skepticism among both Republicans and Democrats on Sunday were generated by the deal which was announced just over two weeks before the Nov. 8 U.S. election.
"We are unprepared at this point to assign anything higher than a 50/50 probability of deal approval," wrote MoffettNathanson Research in a report. But the agency raised its target price by $8 to $100 even while downgrading Time Warner to "neutral".
Similarly, Credit Suisse raised its price target to $107.50 from $90 even as the ratings agency lowered its rating on Time Warner to "neutral" from "outperform".
"We believe the value of the offer is full on current earnings and cash flow; that the probability of a counteroffer from a third party is low; and that the transaction will face lengthy scrutiny from regulators," Omar Sheikh, a Credit Suisse analyst wrote in a report. "We now see better opportunities elsewhere in U.S. Media."

Christopher J. Mitchell

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