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Historic AT&T/Time Warner deal approval jolts media stocks amid M&A flurry

AT&T Inc.'s landmark antitrust victory in securing its bid for Time Warner Inc. and Comcast Corp.'s subsequent 21st Century Fox Inc. offer rocked the media sector for the week ended June 15.

AT&T on June 14 completed its $85.4 billion acquisition of Time Warner, bringing Warner Bros., HBO / Cinemax (US) and Turner Broadcasting System Inc. under the former's leadership. The U.S. Justice Department had sought to block the transaction, arguing in an antitrust suit that the deal would hurt competition in the video marketplace. But U.S. District Court Judge Richard Leon on June 12 ruled against the government, a decision widely seen as opening the floodgates to further deals in the media and communications sectors.

"Convergence of distribution assets and content in the secularly challenged telecommunications and media industries provides rationale for combinations, such as AT&T/Time Warner, due to the threat of new, fast-growing video streaming entrants," Fitch Ratings said after the deal's court approval. With Leon's decision setting important legal precedent, Fitch added it expects the convergence of media and communications to serve as "a catalyst for M&A activity."

Time Warner shares jumped following Leon's ruling before trading activity stopped after the acquisition closed. The entertainment conglomerate's shares rose 3.6% to $98.77 between market-close June 8 and market-close June 14.

AT&T's shares were trading at $32.50, down 3.95% for the week.

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Meanwhile, Comcast, which had previously said it would challenge Walt Disney Co.'s offer for Fox's media assets should the AT&T/Time Warner deal win in court, issued a fresh Fox bid June 13.

Under the terms of the offer, Comcast would pay $35 per share in cash, which represents a premium of about 19% to the value of Disney's all-stock offer as of 12 p.m. ET on June 13. Comcast asked Fox stockholders to vote against Fox's merger agreement with Disney at a special meeting July 10, according to a preliminary proxy statement filed June 13.

Fox in December 2017 had agreed to sell its entertainment assets to Disney for approximately $52.4 billion in stock.

Comcast's stock inched up on the news and was trading at $33.93 midday June 15, up 5.8% from its June 8 close. Fox shares also got a sizable boost and were trading at $44.91 at 12 p.m. ET June 15, up 12.3% from their June 8 close.

Disney's shares climbed on the growing likelihood of a bidding war with Comcast and were trading at $108.80 midday June 15, up 4.6% from their June 8 close. GBH Insights Head of Technology Research Daniel Ives said in a June 13 research report that Disney's "next step will be to raise its bid and match Comcast with an all-cash $65 billion bid" versus its previous stock offer. While Disney would be paying a higher price, Disney investors would generally prefer a cash deal as a stock transaction would dilute shareholder value.

Turning to broadcast, Sinclair Broadcast Group Inc. and Tribune Media Co.'s shares soared for the week. Citing unnamed sources with knowledge of the matter, Bloomberg News reported June 13 that Federal Communications Commission Chairman Ajit Pai is set to hold a vote July 12 to alter limits on how many TV stations a company can own. The move could have a significant impact on Sinclair's planned purchase of Tribune.

Sinclair in May 2017 agreed to buy Tribune for a total purchase price of about $3.9 billion. The broadcasters have been working to win regulatory approval for the deal, having outlined a series of divestitures to bring the transaction into compliance with current media ownership rules. A change in the rules, however, would change that calculus.

Sinclair's shares were trading at $32.85 midday June 15, up 10.4% from their June 8 close. Tribune's stock was trading at $38.32, up 5.6% for the week.