Politics may play part in huge deal
One analyst says deal ‘can be interpreted as a sign of weakness’
Approval may depend on who wins White House. Rieder,
Investors are making it very clear they don’t have high hopes for AT&T’s $83.6 billion buyout of Time Warner to build a telecom-media empire.
They’re not much more bullish on the rest of the media or telecom industries either.
Shares of Time Warner closed down 3% Monday to $86.78, dragging the company’s market value to $68.1 billion, well below AT&T’s buyout price of $107.50 a share, or $83.6 billion excluding assumed debt.
Rather than celebrating the buyout, which is usually the case after a megadeal like this one, in- vestors figure this combination will face major hurdles including getting regulatory approval. Perhaps more importantly, though, the pending deal shows a sign of weakness from a major media player amid technological change.
“Looks like the market is going to be cautious until there is some kind of read on the regulatory landscape,” says Joe Bonner, analyst at Argus Research.
The trading price of Time Warner implies there’s just a one-inthree chance the deal gets done as proposed, says James Dix, analyst at Wedbush Securities.
It’s not just skepticism about this deal’s fate in front of regulators, though. Rather than sparking enthusiasm over the future of telecom and media, investors pulled back on the companies in the industries across the board. An equal-weighted index of all 18 Standard & Poor’s 500 stocks in telecom and media fell 0.2% Monday even as the full S&P 500 index gained 0.5%.
Investors are wondering what Time Warner’s sellout means about the future of stand-alone media companies. And it’s not necessarily positive.
“Time Warner running into the arms of AT&T can be interpreted as a sign of weakness in the big media business model,” Bonner says.
Shares of major media companies ranging from CBS, News and 21st Century Fox all lost ground Monday despite one of their biggest rivals being courted for a rich premium.
It’s not just a matter of a bad day for the stocks, as they have been lagging all year. These 18 telecom and media stocks are up an average of just 3.9% this year while the S&P 500 is up 5.3%. That average masks some more serious stock declines. Shares of TEGNA, the television company that formerly owned USA TO- DAY and other newspapers before spinning them off, are down 21% this year despite it being a year filled with lucrative election advertisement.
Walt Disney and Viacom shares are also down 11.1% and 9% this year, respectively. Some telecom companies’ shares aren’t faring much better. Level 3 shares are down 12.8%, and Frontier Communications’ are off 12.2%.
The fact is, the media business remains challenged, at least in the eyes of investors.
A proliferation of new content players such as Amazon.com, YouTube parent Alphabet and Netflix continue to challenge the dominance of the incumbent players.
The question is whether more media and telecom companies will end up being forced into merging with each other as consumers increasingly spread their time across various devices and sources of content.