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Bracing for a Wireless Arbageddon

Ah, not so fast, Time Warner Inc. traders. It seems the Department of Justice is having reservations about putting its stamp of approval on AT&T Inc.'s $109 billion bid to become another powerful force in the U.S. media industry.

The antitrust division "is preparing for litigation in case it decides to sue to block the deal," according to a Wall Street Journal report Thursday. Time Warner's stock plunged as much as 6.5 percent on the news, but it doesn't mean the deal is even close to dead. In fact, the same report adds that the companies and regulators are also simultaneously working on conditions that would allow for approval of the transaction.

From investors' perspective -- especially merger-arbitrage traders -- what is unsettling is that a deal most thought would be done by now still finds itself in the government's cross-hairs with no conclusion yet in sight -- and under a Donald Trump administration that's been anything but predictable. That said, from the broader consumer standpoint, it's good that this merger is getting a close, thoughful look. AT&T buying Time Warner won't remove a competitor from either industry, but it does concentrate more power, which is less cut-and-dry for antitrust regulators to argue in a swift and tidy court case.

This is the second wireless industry deal to hit a speed bump this week. Sprint Corp. Chairman Masayoshi Son is said to be holding up the beleaguered carrier's merger with T-Mobile US Inc. because he wants better terms and isn't eager to give up control. Sprint shares have been in a downward spiral for weeks.

Even if Sprint and T-Mobile can come to an agreement, there may be antitrust hurdles just like AT&T is experiencing. However, as I explained last month, Sprint and T-Mobile could make a decent case that competition is hurt more if they don't merge.

Absent any deals, here's where things stand: AT&T is hemorrhaging video subscribers and struggling to add as many wireless customers as its three big rivals. Sprint is back to losing money. And we're probably witnessing peak T-Mobile. Meanwhile, Verizon Communications Inc., the No. 1 U.S. wireless provider, doesn't have any deal headaches distracting from the operations and it just added a ton of customers. Of all of them, it may warrant a better look from investors.

The rest of the year could be a rocky ride in wireless, and the Trump administration's handling of the AT&T-Time Warner deal could have broader implications for all big M&A activity going forward. Buckle up.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.


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