E Market Briefing For Friday, June 15

Update on my AT&T rationale

I thought a drop to anywhere around 29-31 would be an attractive entry point (and so far indeed is). The idea of course was that 'if' the deal was approved, 'arbs' (arbitrageurs playing the TWX vs. T spread) would initially sell, and then the shares might rebound a bit, which you've seen. After the 'deal' closes; a large technical overhang might exist for awhile, if TWX shareholders who don't entirely 'grasp' the transformation (which would enhance the value of tons of Time Warner contacts that do not bring CPM .. cost per thousand .. yields like existing AT&T contacts and customers do; but that would improve) it's possible some would sell holdings... hence the temporary overhang. And 'in theory' a worry that the DOJ might still intrude since some pricing arrangements with Time Warner properties must stay in place into next year. (Some are critical of CEO Stephenson for that but it actually gives time to integrate.)  

Stock performance (for the combined AT&T) would subsequently improve, and even recover at least to levels logical on a fundamental basis. That's a higher level than where it is, even not considering a higher P/E multiple on a longer-term basis, if it's valued as a 'Media' not merely 'telecom' stock. If it's viewed with a 'Media' multiple, it won't be a 'widows and orphans' stock for the coupon clipper crowd; a reputation it inherited from earlier days.  


So any shorts who are playing for the overhang trade lower should stay a bit nervous because they should have limited time (or price variation) for them to exit, lest they be run in when AT&T turns higher (barring calamity in the general market of course).  

In essence, after the deal's close (or perhaps at the next conference call with July's Q2 earnings) I'd expect AT&T to outline the new transformation, as I have already explored ('content and distribution' being cornerstones).  

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