Media stock activity not fake news

The $100 billion (and change) merger between AT&T (T) and Time Warner (TWX) looked dead as a doornail when the Department of Justice, citing anti-trust concerns, filed suit to block the deal last month—a move some predicted would have a chilling effect on media deals in general.1

Duking it out with the DOJ isn’t on any corporation’s wish list—and battling the Federal government has not historically been a winning proposition—but AT&T and Time Warner have vowed to enter the ring. The opponents are set to don their gloves sometime next year. Predictably, the two sides have had trouble agreeing on when to start; the DOJ is pushing for a later date.2

Aside from the perceived merits or threats of the deal—you can find plenty of opinions on both sides—the “sexy” story lurking beneath the legal maneuverings has been speculation that the DOJ moved to block the deal because of President Trump’s personal beef with CNN, which is owned by Time Warner.3

Time Warner, which had traded to a 16-year high around $104 in early October, tanked more than 17% to below $86 over the next six weeks as DOJ opposition to the merger solidified. Since then it’s held its ground, inching back above $90.

Time Warner (TWX), 7/28/17 – 12/21/17

Source: OptionsHouse

But yesterday TWX notched its second-biggest up day since it fell out of bed, rallying around 1.5% on heavy options volume—more than 100,000 contracts changed hands (more than 20 times average), with an emphasis on new call positions, including 30,000 July $105 calls.

Are traders wondering whether the merger is really dead? One interesting development on December 20 was AT&T’s announcement that, in honor of the successful passage of tax reform, it would spend $1.2 billion on US capital investments and distribute $1,000 bonuses to 200,000 of its workers—a move some saw as a sort of olive branch extended to the administration, and which earned favorable comments from Trump.4

This story isn’t over, after all.


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1 This is what Justice Department action on AT&T, Time Warner means for stocks. 11/20/17.

2 AT&T and DOJ spar over when antitrust trial should begin. 11/28/17.

3 Forbes. Spite Doesn't Make Right: The DOJ's Revenge Case To Force A CNN Spinoff. 11/28/17.

4 Quartz. Will $1.2 billion in tax-bill spending win AT&T approval for its Time Warner deal? 12/20/17.