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AT&T/Time Warner Not Off The Hook


Image source: Giphy.com

What's going on?

The CEOs of AT&T and Time Warner testified in front of a Congressional committee on Wednesday to argue that the $85 billion deal that combines the two companies is a good thing for consumers… they’re still waiting on US government approval.

What does this mean?

Pretty much all governments review big mergers and acquisitions (M&A) to determine if the new company will have too much influence on its industry and the potential to unfairly raise prices for customers (e.g. you!). There are concerns that AT&T could use its position as America’s second largest wireless carrier and largest satellite-TV provider to somehow gain an unfair advantage by controlling Time Warner-produced content (e.g. making certain content available exclusively to its subscribers).

At the Congressional hearing, the CEOs of both AT&T and Time Warner argued that the consumer would benefit from the deal, due to things like AT&T investing in technology to better deliver content to its customers (both Time Warner’s and others’). It’s worth noting that Congress doesn’t get to vote on the deal (it’s normal for Congressional committees to call people to testify anyway), but the political atmosphere could affect whether the deal goes through or not.

Why should I care?

The bigger picture: This deal could set a precedent for Trump’s attitude to M&A. (tweet this)

US stocks have jumped significantly since the election partly because it is assumed that a Trump administration will relax rules and regulations that apply to companies. But Trump’s rhetoric on the campaign trail suggested he would be against this mega-deal – and perhaps others. Investors will be watching closely to see if that’s indeed the case.

For markets: The outcome of this process will have a big impact on Time Warner’s stock price.
AT&T has agreed to pay $107.5 per share in cash for Time Warner (its stock was trading around $80 before the deal was announced). It’s now at $94, which shows that the market is ascribing some degree of risk to the deal not going through. If the deal is blocked, expect Time Warner’s stock price to fall significantly.

Originally posted as part of the Finimize daily email.

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