Select Page

The U.S. Appeals Court in Washington ruled today that AT&T’s (T) $85 billion takeover of Time Warner (now known as WarnerMedia) could go ahead. The court said in a 35-page opinion that the Justice Department had failed to establish that a lower-court judge had made a clear error when he rejected the government’s case to block the deal on antitrust grounds. The Justice Department said that it had no plans to seek further rulings.

At the close today AT&T shares were up 0.29% to $31.22. AT&T shares are down 14.98% over the last 12 months.The stock is a member of my Dividend Portfolio. It yields 6.55%.

So why, especially given the stock’s underperformance in the last year, didn’t AT&T climb more today?

I can think of three reasons.

First, the stock market had already assumed a court victory by AT&T. Quite probable since the Justice Department case to overrule the lower court decision has always seemed weak. Still, even if this is the reason, I would have expected more of a pop in AT&T shares. After all there was a chance significantly above 0 that the Justice Department would prevail.

Second, the market has already awarded the prize in the sector to Netflix (NFLX) with Disney (DIS) seen as the more significant rival to Netflix. Wall Street doesn’t see that the addition of WarnerMedia (HBO, CNN, TNT, TBS and such movie franchises as Harry Potter and DC Comics) as adding enough to make AT&T a series competitive threat. (AT&T has launched a streaming service called DirectTV now and is planning to launch a WarnerMedia streaming service later in 2019.) Wall Street also worries about AT&T’s DirectTV unit and it’s ability to add and retain customers.

Third, the market has significantly upped its worries about blue chip names such as AT&T in the aftermath of the Kraft Heinz shocker–write downs that resulted in a 27% one-day drop in the stock. AT&T’s name has been floated in a number of unofficial worry lists because it is carrying a lot of good will on its books from the DirectTV deal that could be the center of an Kraft Heinz style write down. Such a write down would probably include a cut to the company’s dividend. I think that this scenario is unlikely but I would elevate my scrutiny of AT&T if the March 2019 quarter shows worsening problems at DirectTV.

At the moment, but subject to week to week revision, I’m keeping AT&T in my Dividend Portfolio.In the light of the Justice Department’s defeat in this anti-trust case I’d expect the government to turn up the anti-trust heat on the pending $26 billion takeover of Sprint by T-Mobile US.