AT&T Undervalued as It Wins Right to Buy Time Warner

We will maintain our $40 fair value estimate for narrow-moat

While we weren't surprised by the ruling against the government, we were surprised there were no conditions attached. There have been many reports that AT&T's witnesses were doing a much better job on the witness stand and made a more compelling argument for the merger than the U.S. government, as some of their witnesses had to retract some of their claims on cross examination. We note that when

We had anticipated that whichever side lost would file an appeal. However, with the judge's strong recommendations, we think a government appeal is now less likely, though the government has six days to file for a stay to prevent the merger. Assuming no stay is filed, the deal should close almost immediately after the six-day waiting period. The current merger agreement requires the deal to close before June 21, so it's possible that the deadline might be extended if the government files a stay.

We haven't been big fans of the deal and reiterate our view that we don't see significant value for AT&T by owning the content rather than acquiring distribution rights. We're also not fond of the price that AT&T will be paying for Time Warner. Nonetheless, we do not anticipate a significant change to our AT&T fair value estimate and continue to view shares as undervalued.

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