AT&T and Time Warner might have declared that the “future of video is mobile and the future of mobile is video” when they announced their $85.4 billion deal over the weekend, but Wall Street isn’t sure the combination will have a place in that future.
The largest deal of the year is currently facing regulatory scrutiny from the Justice Department. Meanwhile, presidential nominees Hillary Clinton and Donald Trump have spoken out about the deal with varying levels of skepticism. Trump said the merger would “destroy democracy,” while Clinton’s campaign spokesperson Brian Fallon said the Democratic nominee thinks “regulators should scrutinize it closely.”
So while AT&T (t) offered $107.50 per share—half in stock and half in cash—for Time Warner (twx), shares of the latter company are trading at an uncommonly large discount—18.6% lower than AT&T’s offering price on Monday.
Nonetheless, famed value investor, Mario Gabelli, who is a major shareholder in both companies, told CNBC on Monday that he had “no problems with [the deal],” and that it would prepare the combined giant for the next decade. He, though, was one of the few fans.
A team of Goldman Sachs analysts revealed their initial thoughts on the deal, maintaining the equivalent of a “Hold” rating on AT&T’s stock.
Credit Suisse‘s research team, led by Omar Sheikh, downgraded Time Warner’s stock on the news, saying other companies, such as 21st Century Fox, are unlikely to start a bidding war for Time Warner.
Jefferies equity analysts led by Mike McCormack, kept the firm’s coverage of AT&T at “Buy,” saying the deal will be “modestly accretive,” but is likely to run into heavy regulatory scrutiny.
William Power, who covers AT&T over at Baird, pointed out in a note titled “Jon Snow to the Rescue?”:
Oppenheimer analysts led by Timothy Horan noted that the $85.4 billion deal—the largest of the year—will be surrounded by political chatter. But the Department of Justice has never rejected a merger between companies at different levels of the production chain. AT&T debt load may also limit its ability to grow following the deal.
Drexel Hamilton managing director Barry Sine, who covers AT&T, meanwhile has recommended that investors swap out of AT&T in favor of its competitor Verizon to “Buy” on the news.
“AT&T is probably not going anywhere over the next couple of years,” Sine told Fortune, adding that while AT&T has a more unfocused strategy, Verizon is specifically targeting mobile and Gen Z audiences. “Full synergies won’t start happening until 2021.”
Sine wrote in his Monday note, downgrading AT&T’s stock to “Hold”:
Shares of Verizon (vz) have ticked upwards slightly by 0.58% in trading Monday.