• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

How to Play the DOJ's Suit Against Time Warner-AT&T Merger

The Department of Justice's arguments against the merger simply fall flat.
By TIMOTHY COLLINS
Nov 21, 2017 | 01:00 PM EST
Stocks quotes in this article: NFLX, AMZN, T, TWX, DIS, S, TMUS, DISH, ATUS

Who can't appreciate the irony of the Department of Justice protecting companies like Netflix, Inc (NFLX) and Amazon.com Inc (AMZN) in the name of the consumer? We're from the government, we're here to help.

As the mess between the DOJ and AT&T, Inc (T) Time Warner Inc (TWX) deepens, arguments from both camps have emerged. The DOJ is worried about pricing and competition. A merger between AT&T and Time Warner will slow online video adoption and maturation, while the consumer will be hurt by pricing.

If your initial reaction was, "Wait. What?" then you are not alone. Whether you try and make the argument from content to number of providers, it simply falls flat for me. Netflix, Amazon, and even Hulu are rolling out plenty of their own content and we've watched the price of a Netflix subscription creep higher. Disney (DIS) is planning its own online service and the biggest issue for cord cutting has been the lack of local channels. The logic falls flat.

There is no lack of competition for online content. As far as slowing video adoption, neither Netflix nor Amazon is going to allow that to happen as they continue to snatch up consumers and race to remain at the forefront of technology.

I don't enjoy politics. Rarely will I discuss politics. There is no winning. But to me, this comes down to CNN -- and the political statements that the network makes.

And I'm no lawyer, so my aforementioned views are mine and mine alone, but I see no reason to be a seller of AT&T on the DOJ news alone. The negative will be the costs associated with a legal battle, which I ultimately believe would result in the merger being approved. Or they simply drop CNN to proceed quickly. I find the gem in the deal is the HBO/DirectTV portion of Time Warner, rather than CNN.

I actually think both names are buys right here, right now. Often, I'd prefer to sell puts on something like T, but the implied volatility really offers nothing of "value." The front months are trading in line with historic volatility, so there appears to be nothing overpriced.

T pays a dividend in early January, so I'd prefer to opt for the stock and a covered call play. With shares around $34.60, my referred play is buying the stock for the $0.49 dividend plus selling the January 19, 2018, $36 call for $0.44, or even the $35 calls for $0.77. Using the $35 calls should offer $1.26 in income over the next 59 days, which annualizes out to a 23.3% return with a total upside of $1.66 should shares get called away post dividends.

I expect shares to get called on Jan. 5 if T is trading over $35, so there is a chance a trader would miss the $0.49 dividend, but they would catch $0.40 in price appreciation and hold the trade for two weeks less. It would actually provide for a higher (29%) annualized rate of return.

The bigger concern for me is the Sprint Corp (S) marriage with T-Mobile US Inc (TMUS) falling apart. It will continue to weigh on the mobile carrier side of the business. That's most evident in the weekly chart on T (see above). For those worried about the possible merger with TWX falling apart and what it will do to shares, glance back to October 2016, when this all came to light.

T has done absolutely nothing in terms of net change over the year, while the market has rocketed higher. In fact, we're below where we traded in 2016. T did trade from $35 to $41 after the proposed deal was announced, so it is very possible perceived approval will send us toward $38 and a closing will send us back to the $40-$41.

The market appears to have priced in deal failure and no longer gives either T any pre-deal value or TWX much value, when the latter will probably be hunted by another player if T isn't a successful buyer.

DISH Network Corp (DISH) is one to watch, as the media plus cable hookup carries forward. The stock appears technically better above $5,1 and you could have TMUS move in after Sprint's tie-up with Altice USA Inc (ATUS) and T's engagement to TWX.

While there's a lot going on here and a lot at stake, the DOJ is the least of my concerns and carries no impact on my views of T, TWX, or media in general. The race to stream is in high gear, with Netflix still clearly in the lead, Amazon gaining some ground and the rest of the traditional cable names and content providers playing catch-up. The T-TWX and S-ATUS agreements won't be the last tie-ups between cable and telecom, and I suspect we'll see media/content names continue deeper into the fray here. The DOJ may be busy over the next two or three years chasing its tail, as technology and consumers change in non-traditional ways.

This commentary originally appeared on Real Money Pro at 11:30 a.m. ET. Click here to learn about this dynamic market information service for active traders.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Collins was short S puts and TMUS puts, although positions may change at any time.

TAGS: Investing | U.S. Equity | Regulation | Markets | Technology | Telecom Services | Mergers and Acquisitions | Options | Politics | Risk Management

More from Technology

I'm Cautious on Marvell Technology Ahead of Earnings

Bruce Kamich
May 20, 2022 11:52 AM EDT

Let's review the charts and indicators.

If You're Looking for a Hero in This Market, Don't Look to Apple, ARKK

Ed Ponsi
May 20, 2022 10:30 AM EDT

Folks are asking if it's finally time to buy the ARK Innovation exchange-traded fund or Apple. Let's check the charts.

Don't Be in a Rush to Invest in Cisco

Stephen Guilfoyle
May 19, 2022 11:00 AM EDT

Someone already long this stock, who has taken a hit, doesn't need to liquidate unless...

Alteryx Has Yet to Bottom Based on Its Charts

Bruce Kamich
May 19, 2022 9:04 AM EDT

The technical signs indicate that the stock of the data analytics company still needs to build a base.

Now It's All One Big Macro Trade

Maleeha Bengali
May 19, 2022 9:00 AM EDT

The liquidity that pushed up all risky assets is now the leading factor in taking them down.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login