Our Take: AT&T Will Fight Before Selling Assets

Reuters and CNBC reported on Nov. 8 that the Department of Justice wants

The Wall Street Journal

that the DOJ would sue to block the merger. AT&T has stated that it has no intention of selling CNN (one of the networks under Turner) and has not offered such a sale to the DOJ as part of the negotiations about the deal. While we are maintaining our wide moat rating and $102 fair value estimate for Time Warner, we note that a potential lawsuit from the DOJ was one of the main reasons that we thought that the deal either would fall through or would not close until next year. If the merger were to be terminated, our stand-alone fair value estimate for Time Warner would remain at $85. We also reiterate our narrow moat rating and $40 fair value estimate for AT&T.

As we noted last week, we believe that the leaks to the press about the potential lawsuit and the suggested divestitures are part of the DOJ’s strategy to put pressure on AT&T to offer more concessions to close the deal. While we believe that the DOJ is posturing, we note that either divestiture would be much larger than either we or the market expected. We expect that if the reports around the DOJ’s stance are correct, AT&T will attempt to fight the DOJ in court prior to divesting either asset.

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