Time Warner shares jump again on talk of merger with AT&T

Last Updated Oct 21, 2016 4:23 PM EDT

Shares of Time Warner (TWX) on Friday surged for a second consecutive session after being halted on the New York Stock Exchange amid media reports that the media company is in talks to be acquired by telecom giant AT&T (T).

According to the Wall Street Journal, the companies are in “advanced talks” for a cash-and-stock deal that could be finalized as early as this weekend. CNBC’s David Faber also reported the companies have held discussions. Shares of the media conglomerate jumped on Thursday after Bloomberg News reported senior executives at the companies held informal discussions about  a merger.

AT&T would have to shell out over $100 billion to buy Time Warner, according to Credit Suisse, which would make the transaction one of the largest media deals in recent years. 

Shortly before the close of trading, Time Warner shares were up $6.43, or 7.7 percent, to $89.33, while AT&T’s stock fell $1.32, or 3.4 percent, to $37.33.

Officials from AT&T and Time Warner didn’t immediately respond to a request for comment.

Time Warner, whose assets include CNN, HBO and Warner Bros., has been in the merger spotlight before. In 2014, CEO Jeff Bewkes and his board turned back an offer from Rupert Murdoch’s 21st Century Fox (FOXA) that was valued at more than $75 billion.  With today’s run-up in its stock, the media company’s market valuation is roughly $74 billion. 

For AT&T, Time Warner’s choicest asset may be cable channel HBO, along with the streaming service it launched last year, said Brett Harriss, a media and entertainment analyst with investment firm Gabelli & Co., which owns shares of Time Warner.

Still, some Wall Street analysts questioned the merits of a tie-up between AT&T and Time Warner, noting the lack of synergies in their business and potential antitrust concerns. 

“To us, the likelihood of a deal seems proportionate to its apparent logic, namely, relatively low,” said James Dix, an analyst with Wedbush Securities, in a note, adding that it would create problems for AT&T shareholders. “In the midst of its integration of DirecTV, AT&T may not be the ideal merger partner.”

AT&, itself no stranger to dealmaking, is still digesting its 2014 purchase of satellite TV provider DirecTV for $48.5 billion. As a result, the telecom provider doesn’t have much room for negotiation in its balance sheet and can only afford to buy Time Warner if the deal consisted largely of equity, according to Craig Moffett, an analyst with MoffetNatanson. 

In recent years, antitrust regulators have taken a dim view of deals that united large content providers like Time Warner with content distributors like AT&T.

U.S. wireless providers are looking to broaden their businesses as the wireless market matures and growth slows. Regulators have shot down efforts to combine the wireless providers, arguing that it lessens consumer choice.

“You end up with almost no wiggle room to be able to create differentiation for either the content or the distribution through the ownership of both,” Moffett said. “It’s hard not to conclude that AT&T is expressing dissatisfaction with the set of cards that they have got. So they are going back to the deck to try and draw some new ones.”

He put the odds of an AT&T-Time Warner deal surviving antitrust review at “50-50 at best.” 

AT&T’s courtship of Time Warner also could attract other suitors for the company. The Wall Street Journal reports that Apple (AAPL) executives contacted Time Warner earlier this year about a possible deal and is now monitoring the situation.

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