AT&T Chairman and CEO Randall Stephenson has been working for more than a year on the deal, which is worth $85.4 billion, or $108.7 billion including assumed debt. Stephenson said AT&T is "prepared to litigate" at a New York Times conference on Nov. 9, though spokespeople for the telecom did not immediately respond to a query this week.
The carrier could be on the hook for a $500 million termination fee if it abandons the deal. It would also have to pay an extra $300 million to retire debt it has already raised at a 1% premium.
The greater cost could come in the form of interest payments on debt to finance the transaction if a battle with the Department of Justice drags out for a year or so, Moody's Investor Service analyst Mark Stodden said.
AT&T has already sold $30 billion in debt to finance the deal's cash requirements. Of the $107.50 per share that it would pay to Time Warner shareholders, $53.75 is in cash.
"If this took a year of legal back and forth, they have to pay interest at -- call it 5%," Stodden said. "Now we're talking real money, another $1.5 billion in interest and all of the legal fees and they may not get it in the end."
Yet, Stephenson has expressed a willingness to mix it up with the Justice Department.
Still, Halliburton (HAL) also originally said it would fight an April 2016 DoJ suit against its $35 billion purchase of Baker Hughes (BHI) . A month later, the oilfield services company agreed to drop the purchase, and paid a $3.5 billion termination fee. Halliburton also had to redeem $2.5 billion of debt it issued to finance the deal at a premium, and wound up paying $41 million of fees and associated expenses.
Back in 2011, AT&T did not fight the DoJ's lawsuit to block its $39 billion purchase of T-Mobile (TMUS) . The telecom had to terminate a $20 billion credit agreement with a group of banks.
Stephenson has plans for Time Warner's entire portfolio, and would not happily divest operations. AT&T is already bundling HBO's streaming service with its wireless packages, and Stephenson has boasted about the potential of pairing the telecom's ad targeting capabilities with the vast amount of ad space on Time Warner's CNN, TBS and TNT cable networks.
"It's a risky path for the company to pursue an actual court case," Stodden said.
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