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AT&T, Time Warner Deal Gets EU Approval, Awaits DOJ Nod

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According to a recent LightReading report, U.S. telecom behemoth AT&T Inc. (T - Free Report) has gained approval from the European Commission, an institution of the European Union (EU), for its proposed $85.4 billion acquisition of the media giant Time Warner Inc. . The approval from an esteemed authority marks a significant move in the path of the deal. However, the deal awaits further clearances from other regulatory bodies.

Since the announcement of the deal in Oct 2016, the industry has been rife with speculation over whether the deal will get regulatory approval. The two government groups that might have a say in the deal are the U.S. telecom regulator Federal Communications Commission (FCC) and the U.S. Department of Justice (DOJ).

Out of these two regulatory bodies, the FCC is the more conservative one as it has a broad mandate to review the transaction and may seek detailed information for an in-depth antitrust investigation. To this end, FCC clearly mentioned that it will not be reviewing the merger because it does not involve the transfer of any FCC-given license of Time Warner to AT&T.

However, there’s a bigger barrier to cross. The U.S. Department of Justice is expected to closely scrutinize the planned merger and assess the impact it can have. The deal is expected to close by the end of 2017.

There is another threat to the deal –– President-elect Donald Trump considers it a “bad deal” as per a Bloomberg report. Per the report, Trump feels the deal will consolidate too much power in the media industry.

Deal Prospects

If the proposed merger finally goes through, the combined entity will become a major player in the consolidated telecom-media space. The proposed merger with Time Warner will provide AT&T a portfolio of lucrative content. Time Warner's media empire includes HBO and Turner Broadcasting, which has the rights to sports telecast. It also owns the Warner Bros. film studio and cable networks TNT, TBS and CNN. Moreover, Time Warner owns a 10% stake in Internet video provider Hulu. Therefore, the company will enjoy control over both high-quality content and distribution medium.

The combined entity will also pose challenges to the leading cable MSO (multi service operator) and media and entertainment firm, Comcast Corp. (CMCSA - Free Report) which acquired NBC Universal in 2011. Notably, AT&T will in a face-off with Comcast in the wireless segment as the latter announced plans to enter the wireless service business in 2017.

Bottom Line

The trend of telecommunication and media companies getting merged has lasted quite sometime. This is because of intense competition faced by traditional telecom and pay-TV operators, the success of which depends largely on technical superiority, quality of services and scalability. Cut-throat pricing competition has put pressure on margins. Hence, several tech giants like Verizon Communications Inc. (VZ - Free Report) , Alphabet, Facebook and Amazon have entered the telecom-media space.

Over the past three months, AT&T grew 2.21%, while the Zacks-categorized Wireless National industry declined 1.21%.

AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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