We believe the proposal is a very good deal for Time Warner and are raising our fair value estimate to $107 to match the deal price.
announced over the weekend that it agreed to be acquired by AT&T for $107.50 per share with $53.75 in equity and an equal amount in cash. We are maintaining our wide moat rating for Time Warner but are raising our fair value estimate to $107 to match the deal price. At this point, we do not foresee another bidder for the company, and in light of both the nice premium offered by AT&T and the potential for significant regulatory scrutiny, we believe that the current proposal is a very good deal for Time Warner shareholders.
Neil Macker, CFA, is an equity analyst for Morningstar.
Given the large 35% premium to the unaffected price of $79.25 (the close on Wednesday, Oct. 19), we believe that the Time Warner investor base will approve the deal. Despite passing the investor vote, we expect the proposed merger will receive a high-level of regulatory scrutiny and the probability of passage could depend on the outcome of the upcoming U.S. presidential election and any subsequent changes in personnel and/or philosophy at the FCC and the Department of Justice. We also think that the premium will also force out some potential counterbidders particularly, Twenty-First Century Fox where the stock price has slid over 25% since the firm made an unsolicited $85 per share bid for Time Warner in July 2014. While other rumored bidders like Apple or Google could potentially outbid AT&T given their larger cash balances and stronger equity, we don’t expect either firm to counterbid given their previous reluctance to buy Time Warner for well under $100 per share.
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