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AT&T Investors, Prepare for a Cash Tug-of-War

Get ready for a tug of war over AT&T's Inc. cash because once the Time Warner Inc. megadeal closes that money will need to stretch further than it ever has before.

AT&T is in the process of wrapping up its $109 billion acquisition of the TV-network and movie-studio owner, a bet that bundling Time Warner's content with AT&T's distribution will create a must-have service to keep customers from switching. Bloomberg News reported Monday that U.S. antitrust officials have progressed to talks with the companies about potential closing conditions, which suggests the government lawyers have nearly finished their review. And on Tuesday's second-quarter earnings call, AT&T management reiterated that it expects to be done with the transaction by year-end.

I've written about the merits of the wireless-entertainment corporate mashup (here) as well as the challenges facing AT&T (here) as it grapples with cord-cutting in its DirecTV division and a price war with wireless service rivals. But one topic that's been given less attention is the balance sheet. AT&T has assured its stakeholders of "rapid deleveraging potential." However, there is some skepticism in the debt community that reducing leverage...