AT&T-Time Warner Merger Approval Opens Floodgates for Big Media Deals

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Shares of Time Warner instantly rose 5 percent after the closing bell the moment the news broke, while shares of AT&T fell 1 percent.

A federal judge’s ruling Tuesday in favor of AT&T’s acquisition of Time Warner has bankers salivating over the next mega-deal, and the one after that, now that the regulatory floodgates appear to have opened for mergers and acquisitions. 

Shares of Time Warner instantly rose 5 percent after the closing bell the moment the news broke, while shares of AT&T fell 1 percent.

Evercore ISI analyst Vijay Jayant said a positive trial court decision would be "providing an encouraging backdrop for media M&A." And Hal Vogel, CEO of Vogel Capital Management and a former entertainment industry analyst, told The Hollywood Reporter, "If the deal is allowed, then a big flurry of M&A in media ... will likely be seen."

First up is likely cable giant Comcast, which, as early as Wednesday, could make an all-cash bid for the same parts of 21st Century Fox that Walt Disney in December agreed to buy for $52.4 billion. Comcast previously said it was preparing a "superior" offer.

"Whether or not an appeal or stay is granted, with an AT&T-Time Warner legal victory we would expect Comcast to bid all-cash for the same Fox assets that Disney is trying to buy within 24-48 hours," predicted BTIG analyst Richard Greenfield. "Look for a premium to Disney’s bid for Fox of at least 25 percent" and potentially 30 percent, or $65.5 billion to $68 billion.

CBS Corp., Viacom, Lionsgate and maybe even AMC Networks have been mentioned as possible M&A targets or buyers, depending on who you ask, though CBS and Viacom might be in limbo for months as they hash out their legal differences.

The judge's ruling means "the current frenzy to get larger among traditional media companies continues," said Northlake Capital Management founder Steven Birenberg.

"Traditional and new media will be emboldened that the coast is clear for a regulatory review and the regulatory M&A environment everyone thought was coming when Trump took office will be on," he said.

After the closing bell, media-entertainment shares were up all over the place as investors placed bets on which ones would be acquired next. Lionsgate rose 6 percent, while Discovery Communications, AMC Networks, CBS and Viacom were higher.

Shares of 21st Century Fox also gained 6 percent as Wall Street now expects Comcast to bid higher on those assets that were meant to go to Disney, including the film and TV studio, a 39 percent stake in European TV firm Sky and some local TV stations and Fox Sports channels.

But Jefferies analyst John Janedis warned investors in a note ahead of Tuesday’s decision on the Time Warner deal to not expect everyone to be sent multibillion-dollar offers.

"The potential pool of transformational M&A deals is rapidly shrinking," he argued. "Standalone CBS is the most attractive asset, though the current issues likely preclude a deal, at least through the summer."

Those issues, of course, involve a legal dispute that has CBS trying to dilute the 80 percent control that Shari and Sumner Redstone hold (via National Amusements Inc.) down to 17 percent so that NAI cannot force CBS to merge with Viacom. That dispute is expected to keep potential bidders away from CBS and Viacom until their issues are settled.

Like Janedis, Guggenheim Securities analyst Michael Morris isn't sure how attactive traditional media is nowadays.

"We remain skeptical that additional mergers in the traditional ad-supported, linear television industry will address the core business challenge: that new entrants are willing and able to entertain audiences at a lower cost and/or with a more consumer friendly experience," he said.