The combined entities delivered revenues of about $47 billion and profits of about $5 billion during the June quarter. Compare that with Comcast’s $21 billion in revenue and profits of $2.5 billion.
AT&T will run just as Comcast, keeping its hands off Time Warner’s entertainment and cable properties as Comcast stays away from NBC Universal. John Stankey will run Time Warner for AT&T much as Steve Burke runs NBC Universal for Comcast.
What’s Expected of T Stock
Time Warner is expected to deliver rocket fuel to AT&T stock, which has gone nowhere for five years while Comcast’s value is up nearly 130%. After all, CEO Randall Stephenson thinks, he has a better wireless franchise to sell it all through.
From the other side, the expectation is that Time Warner will be freed from intense worries about whether Wonder Woman or King Arthur won the box office, how many NBA playoff games there may have been and whether Trump likes MSNBC or CNN. It will be lost in the larger numbers of cable and wireless. Political pressure of all kinds will be reduced. Business will become more normal.
Our Richard Saintvilus is buying the argument. Wireless will pull the train, and Time Warner content will help pull it. The U-Verse cable operation will do better as part of a larger bundle, which could include discounts on wireless service, when it’s Time Warner content. He expects it to outperform the market over the next 12-18 months.
Given that, why worry?
Start with over $40 billion in cash AT&T has promised to complete the deal. Some was already raised by June, but the rest is going to send AT&T’s total debt load north of $170 billion, when Time Warner’s is added, on total assets of about $490 billion. That could mean a debt downgrade by Moody’s and higher prices on said debt, in an environment of rising interest rates.
Fear dropped the stock 2% in one trading session recently — fear that the 49 cents per share dividend, now yielding over 5%, could come under threat.
It is a fear shared by Vince Martin, who sees margins under pressure with the new iPhone, further subscriber losses for U-Verse and DirecTV — which was acquired in 2015 — and only $60 billion in EBITDA to fund that $170 billion in debt.