The past week has seen a slew of crazy news regarding the proposed merger of AT&T, Inc. (NYSE:T) and Time Warner Inc. (NYSE:TWX).

First came a leak out of the Department of Justice that the government was going to demand that AT&T sell CNN or it would take the merger to court. Then AT&T said it would absolutely not sell CNN under any circumstances and that AT&T never offered to sell CNN. AT&T said the timing of the deal was changed from “by year-end” to “uncertain.”

Then the news was modulated and it turned out that the DOJ didn’t say anything about CNN specifically, but that AT&T would either have to sell its Turner Broadcasting assets or DIRECTV.

AT&T’s CEO Randall Stephenson spoke at the DealBook conference in New York on Thursday. He said that on Monday, there was an initial meeting between AT&T and the DOJ to “get to know each other” and to understand “what the bid-ask is in a transaction like this” and “how we continue this process to get to a negotiated settlement.”

He went on:

“One of the key benefits of putting these two companies together is to stand up a new advertising platform. We have built an amazing distribution platform. 150 million mobile subscribers, largest PAY-TV in the base in the US, a huge broadband base…pairing that with the Turner advertising inventory is a very powerful thing.”

Selling CNN doesn’t meet these goals, although a “lot of people have expressed interest in CNN.” Stephenson flatly denied that the DOJ every asked him to sell CNN and refused to comment regarding if the DOJ asked him to sell DIRECTV.

Stephenson suggested that technology companies like Alphabet, Inc. (NASDAQ:GOOGL) and Facebook Inc. (NASDAQ:FB), which currently dominate the advertising world, would have a bona fide competitor in the combined entities. That’s what this merger is really about.

Thus, being told to sell either Turner of DIRECTV runs contrary to the very purpose for the merger. Not only that, AT&T just closed the DIRECTV purchase fewer than two years ago.

Stephenson went on to point out that this is a “classical vertical merger”, and that the Comcast Corporation (NASDAQ:CMCSA) purchase of NBC-Universal gave AT&T additional comfort in believing this merger was well within the law.

TWX Merger Insight

In my view, and based on Stephenson’s phrasing of “finding the bid-ask…negotiated settlement,” there is going to be a negotiated resolution. The deal will go through.

In addition, a Saturday Bloomberg report revealed that the DOJ suggested AT&T sell Turner Broadcasting, but form a JV with the buyer that “could sell advertising on the Turner networks to exploit AT&T’s user data without the telecommunications giant owning the broadcasting unit.” If it’s true that this suggestion was floated, it indicates that this is indeed a negotiation that, with some creativity, would avoid litigation.

If there is litigation, then sooner would obviously be better. Stephenson would ask for an expedited hearing, and believes it could be accomplished well before the April 22 deadline for the merger to close. As he also said at the conference, both AT&T and the DOJ agree that “it’s time to bring this to closure. Either settle or litigate”. So we should get an answer sooner rather than later.

Now, some experts agree that there is no competitive threat to file an antitrust claim upon. Sure, the DOJ could find a bunch of stuff to jam into a lawsuit. For example, take DIRECTV. Under the merger, AT&T would own HBO. Other Pay-TV content providers would allegedly be concerned that AT&T would pimp HBO more than these other providers.

This may very well be the case, yet there are two huge mitigating factors. First of all, who cares? Consumers are capable of making their own choices. If DIRECTV heavily discounts HBO, then the other providers can discount theirs. Second, with the rise of on-demand streaming and declining subscriber count at DIRECTV, this issue is rapidly becoming moot. Third, AT&T said it would not maintain exclusivity on Time Warner programming. Nor would it make any sense to. AT&T would make a lot more money by licensing it.

The Bottom Line on TWX Stock

With TWX stock hitting $87 late last week and closing around $90 on Friday, this presents an exceptional opportunity to go long TWX shares. The deal was pegged for half cash and half AT&T stock, and at an AT&T price of $34, the deal would close at $102.60. That’s a 14% increase from here. If it goes out as intended, at $107.50, there’s 19% upside.

There is some potential downside, but I don’t see much. TWX stock was at $80 before the deal was announced over a year ago. TWX stock has delivered good earnings in the past year, and you’d think the stock should be worth around $88 if the merger fails.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He has sold naked puts against Time Warner stock, and holds calls on TWX shares. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.