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Wall Street reacts to AT&T

Time Warner, ATT CEOs on $85 billion merger

ATT and Time Warner consider their $85 billion partnership creates vital sense.

Now comes a tough partial — convincing doubtful investors that a understanding won’t be a second entrance of AOL Time Warner.

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The bonds of both companies fell after a opening bell: Time Warner mislaid 3% and ATT forsaken 2%.

In fact ATT is charity $107.50 a share, yet Time Warner was next $88 Monday morning.

Why? It’s given ATT is profitable money for half of a deal. The residue will be financed with stock. ATT’s batch is descending — and boring down Time Warner — due to concerns a understanding could tumble detached following what is approaching to be heated regulatory scrutiny.

ATT (T, Tech30) CEO Randall Stephenson and Time Warner (TWX) arch executive Jeff Bewkes addressed analysts and investors on a discussion call Monday morning.

“We’re assured this multiple of Time Warner and ATT is a ideal compare for both companies,” Stephenson pronounced during a call.

He total a dual companies will have a clever participation in sports, interjection to Time Warner’s deals with Major League Baseball, a NBA and a NCAA for Mar Madness in further to ATT’s tenure of DirecTV and a NFL Sunday Ticket service.

The call followed a media shell by Stephenson and Bewkes progressing Monday to plead and urge a deal, that would combine Ma Bell and a some-more than 130 million wireless subscribers in a U.S. with a owners of HBO, TNT, and, yes, CNN and CNNMoney.

Related: ATT buys Time Warner in mega media deal

ATT’s batch has depressed some-more than 7% given rumors about a probable tie-up started to disseminate on Thursday.

Wall Street doesn’t seem to consider a matrimony of ATT and Time Warner is a intelligent pierce — quite during this price. ATT’s $107.50 a share offer for a association is 19% aloft than where Time Warner’s batch is trade currently, and 35% over where it was before a rumors started.

Investors seem disturbed that ATT might be spending too most for Time Warner and that a financial and vital advantages won’t be as poignant as Stephenson has promised.

Stephenson even joked, in response to a doubt from BofA researcher David Barden about a merger, that he has never run a Hollywood studio.

The criticism seemed to be a approach for Stephenson to encourage analysts (and maybe Time Warner employees) that ATT would not make vital changes during Time Warner. Stephenson seems to comprehend he will need assistance using a media conglomerate.

But a understanding also seems to be reminding some of a large partnership between AOL and Time Warner behind in 2000. That is now concurred as one of a slightest successful in story and was totally dismantled years later.

AOL was eventually spun off. It’s now owned by Verizon (VZ, Tech30). Time Warner Cable was also spun off, and it is now partial of wire hulk Charter Communications (CHTR). Magazine and book publisher Time Inc. (TIME) is also now an eccentric company.

Tom Eagan, an researcher with Telsey Advisory Group, pronounced in a news it was misleading that owning Time Warner calm finished most financial clarity given ATT already offers it to a subscribers. Or as he put it, “why buy a cow when we get a divert for free?”

Related: ATT and Time Warner understanding faces tough regulatory fight

Craig Moffett and Michael Nathanson of MoffettNathanson total that a understanding lacked both synergies and “strategic logic.”

Moffett and Nathanson total that a understanding is about giving ATT new income streams in a media and party businesses. That’s not a misfortune thought in a world, yet they consider that a cost is simply too high.

ATT is proposing a cost that values Time Warner during some-more than 12 times 2017 estimates for gain before interest, taxes debasement and amortization or EBITDA — a pivotal magnitude of increase used to value media companies.

By approach of comparison, wire hulk Comcast (CMCSA) bought NBCUniversal for about 9 times EBITDA estimates behind in 2009.

Analysts are also disturbed about a large volume of debt that a total association would have — potentially as most as $175 billion following a shutting of a deal.

But ATT CFO John Stephens pronounced during a call that a association will beget adequate giveaway money upsurge to keep profitable down a debt and say a investment class corporate bond rating. He conceded yet that a volume of debt is “large.”

Related: Why ATT wanted Time Warner

Analysts also seem endangered about either ATT is satirical off some-more than it can gnaw right now. Amir Rozwadowski of Barclays asked Stephenson because ATT was looking to do such a large understanding right now when it is still in a routine of integrating DirecTV.

Stephenson pronounced he was assured that a complicated lifting concerned with DirecTV would be finished by a finish of 2017 — that is when he also approaching a Time Warner understanding to be finalized following regulatory reviews and votes by a dual companies’ shareholders

At a finish of a day, Stephenson pronounced he thinks some-more mergers between placement and calm companies are going to take place. He didn’t wish ATT to be personification catchup with Verizon, Comcast and other rivals.

“We wish to be during a front of this. We don’t wish to be chasing it,” Stephenson said.

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