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Time Warner and AT&T Are a Deal-Anxiety Barometer

An AT&T store in New York Photo: Richard B. Levine/Zuma Press

The Trump administration at times wears its populist hat and at others its pro-business hat. When it comes to antitrust enforcement, investors are betting it is sporting the latter.

Perhaps the clearest evidence of this wager is the spread between Time Warner ’s TWX -3.80% share price and the price implied by AT&T ’s T 0.09% deal for it, announced Oct. 22. If it were to close by the end of 2017, holders of Time Warner shares would stand to gain 12%. That compares with 21.6% on Oct. 31.

The narrowing suggests investors are increasingly convinced that President Donald Trump won’t follow through on his pre-election threat to block the proposed merger. It also speaks to a general optimism about lenient antitrust enforcement under Mr. Trump.

Looking at six of the largest pending deals in which antitrust regulation is an issue, the average arbitrage spread had fallen to 6.5% on March 16 from 15.6% on Election Day, according to Churchill Capital, which advises institutions on investing in mergers.

Not all of the spreads have narrowed because of Mr. Trump, but the broad market rally that has occurred since his election, driven by expectations of lower taxes and lighter regulation, has whetted investors’ appetite for risk.

Get financial insights and commentary on global investing from The Wall Street Journal’s Heard on the Street team.

Makan Delrahim, who Mr. Trump is preparing to name as head of the Justice Department’s antitrust division, was a lobbyist for health insurer Anthem on its proposed merger with Cigna . Ajit Pai, the new chairman of the Federal Communications Commission, is outspokenly pro-business. A permanent chairman of the Federal Trade Commission has yet to be named.

There are also company-specific reasons for optimism: With AT&T and Time Warner, the Justice Department’s 2011 approval of Comcast’s deal to buy NBCUniversal offers a precedent. Also, AT&T and Time Warner generally don’t compete with one another. Mr. Pai recently said he doesn’t expect his agency will be reviewing the deal, removing a major hurdle. The merger also recently received approval from the European Commission.

There remains a risk that Mr. Trump’s populist stance on antitrust issues could rear its head again in a Twitter message or offhand remark, sending arbitragers scattering. Barring that, deal-making under Trump looks like a safer bet.

Appeared in the March 20, 2017, print edition as 'Little Worry On Antitrust Enforcement.'


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