AT& T - Buy At $37-$37.50Per Seeking Alpha/ 7/3/17
Summary
This weekend two major moves by the company suggest that the merger is a done deal.
We discuss the management changes and the major debt taken on.
A discussion of earnings shows strong expense management and rising expectations for the future.
AT&T (NYSE:T) has just made two major moves this weekend that you need to be aware of as it prepares for a merger with Time Warner (TWX). First it is shaking up management. Second, it is finalizing this year's largest corporate bond sale. Both of these moves suggest that this merger is a done deal and the government's blessing at this point is just a formality. With these types of moves, especially the financing move, you can rest assured management knows it is in the clear on this deal. Although I have always said we need to analyze the company and future expectations under the assumption that the deal would not close, having this vote of confidence that the deal will close is bullish in my opinion. Let us discuss these two moves.
First, management is being moved around to prepare for the on boarding of Time Warner under the AT&T umbrella. Effective tomorrow (August 1) Chairman and CEO Randall Stephenson announced three major executive changes. First, Lori Lee who is Global Marketing officer will take over leadership of AT&T International. This move is important as international sales are an ever growing source of revenues for the company. In addition, Ms. Lee was the lead of the merger planning team. The second move is the appointment of John Stankey to take on the lead of the Time Warner integration team, and in this role he will work with Time Warner CEO Jeff Bewkes to plan for a transition of Mr. Bewkes to assume lead of AT&T's new media company post-merger. Finally, John Donovan, who was Chief Strategy Officer of AT&T Technology and Operations, will become CEO of the new AT&T Communications segment, which is comprised of AT&T's Business Solutions, Entertainment Group, and Technology group.
Second, we learned this weekend that AT&T is now seeking financing presumably to pay for this merger. This is a serious on-boarding of new debt. While the merger is costing in the ballpark of $85 billion, AT&T is looking to raise $22.5 billion through a seven-tier bond offering according to a Financial Times Piece. Evidently investors had piled in orders to the tune of $63 billion to get in on the bond offering. According to the article: "the sale was to include notes with maturities ranging between 5.5 and 41 years, with yields on new 10-year debt set to price 160 basis points above benchmark Treasuries". This is a serious amount of cash being raised for an already debt laden company.
