Fox `Clear Winner' as Analysts Look to AT&T Ruling to Spur Deals

(Bloomberg) -- Wall Street expects that AT&T Inc. winning U.S. antitrust clearance to buy Time Warner Inc. will have widespread effects on planned and speculated deals across the media sector. Twenty-First Century Fox Inc. is a “clear winner,” according to Jefferies, as the court’s decision is expected to draw Comcast Corp. into a bidding war with Walt Disney Co. Raymond James says the ruling may also have positive implications for T-Mobile US Inc.’s proposed purchase of Sprint Corp. and may lead investors to ponder a potential tie-up between Charter Communications Inc. and Verizon Communications Inc.

Read more: AT&T Win Spurs Stock Rally as Investors Bet on Next Big M&A Deal

Here’s what analysts are saying about pending and potential media deals:

Time Warner and AT&T

MoffettNathanson, Michael Nathanson

  • MoffettNathanson downgraded Time Warner from buy to neutral and lowered price target to $103 from $109 to reflect the approval of the deal at AT&T’s current price.
  • Although Time Warner will initially be a positive for AT&T’s earnings, Nathanson says to “be careful what you wish for” as the deal will be a negative for the balance sheet. He downgraded AT&T to sell from neutral and cut his price target to $28 from $35.

Jefferies, John Janedis

  • AT&T shares will probably be range bound.
  • “The ruling removes the M&A overhang, brings mid-single digit deal accretion, and better positions AT&T to compete.”
  • AT&T may need to accelerate investment in Time Warner as advertising benefits and opportunities may take longer to materialize and risks to standalone earnings forecast remain.

Evercore ISI, Vijay Jayant

  • Time Warner shares are trading higher on the positive trial outcome, but “we don’t believe that there is any fundamental justification for weakness” in AT&T shares since the deal will add to both earnings and free cash flow per share.
  • U.S. District Judge Richard Leon, in his conclusion, stated that “the temptation by some to view this decision as being something more than a resolution of this specific case should be resisted by one and all!” Even so, Evercore says few will be able to resist that temptation.

Susquehanna, Tom Claps

  • If there is no appeal Wednesday, “the odds that the DOJ abandons the case rise significantly” as Judge Leon strongly discouraged the government from seeking an emergency injunction.
  • The deal will likely close on June 18 and no later than June 20, unless the Justice Department decides to move forward.

Raymond James, Frank Louthan

  • “The lack of conditions is significant as it alleviates the oversight of the DOJ or other agency watchdogs.”

Read More: Health Deal Darlings Should Bask in AT&T Afterglow

Fox, Disney and Comcast

Jefferies, John Janedis

  • Fox is a “clear winner following today’s ruling, as it will likely set off a bidding war” between Comcast and Disney, which will probably weigh on Comcast shares.
  • Offers from Comcast or Disney could reach as high as $80 billion, or $42.50 a share, and still maintain investment-grade credit ratings.

Raymond James, Frank Louthan

  • A formal offer from Comcast for Fox’s entertainment assets will probably receive more regulatory scrutiny than the Time Warner-AT&T deal did.

KeyBanc, Andy Hargreaves

  • Ahead of the court ruling, KeyBanc told Bloomberg that approval of the Time Warner-AT&T deal would likely mean “we’d get a Comcast deal by the end of the week.”

Sprint and T-Mobile

Raymond James, Ric Prentiss

  • Raymond James upgraded Sprint to outperform from market and raised its price target on T-Mobile to $82 from $77 with a reiterated strong buy rating. New ratings reflect a 65 percent probability that the proposed deal is approved and closes by the end of 2019.

Jefferies, Scott Goldman

  • “We remain cautious on the regulatory prospects and believe the horizontal wireless merger poses significantly higher antitrust concerns.”
  • “We do not anticipate the DOJ to be swayed by its loss in the AT&T litigation.”

Charter and Verizon

Raymond James, Frank Louthan

  • Investors think Verizon will have to do something in response to the Time Warner-AT&T deal and Charter could spark renewed interest as a target.
  • “Verizon will not be pressured to do any large deal in response, and believe in the short term, any pressure from that expectation remains an opportunity.”

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