posted on 11 January 2017
by Richard Stavros
The market has been positively ebullient since Donald Trump’s unexpected election victory. Though much remains to be seen, investors have been giddy about the prospect of corporate tax cuts, a regulatory rollback, and a presumably more business friendly executive branch.
Of course, as with any new presidential administration, there are significant caveats. And for a politician as unconventional as Donald Trump, there are probably more caveats than usual.
Even if Trump and the Republican Congress deliver on these goodies, there’s still the ever-present risk of the president-elect’s itchy Twitter trigger finger.
And it’s possible that could curtail some of the appetite for risk among corporate America’s leading executives. Such animal spirits have been sorely lacking since the downturn, and a return to risk-taking (and business investment) is necessary to kick off the next growth cycle.
However, Trump’s very unpredictability could end up keeping the atmosphere of uncertainty alive for businesses, perhaps limiting the effect of certain growth-oriented policies. After all, CEOs never know when a populist president might single out their company for a social-media thrashing, and whether they’ll have to reallocate their firm’s resources accordingly.
Trump has previously put Boeing, Carrier, Ford, General Motors, and Toyota in the spotlight, among others. And he has even won apparent concessions from some of these companies, thus putting the presidential bully pulpit to effective use before even taking the oath of office.
In the Crosshairs
A couple of Utility Forecaster’s favorite cable and telecom companies have also faced unwelcome attention from the president-elect.
Perhaps chafing at the media pile-on during the final weeks of the election, Trump declared that he would oppose AT&T Inc.’s (NYSE: T) $85.4 billion mega-merger with Time Warner Inc. (NYSE: TWX), which owns CNN in addition to other plum media assets.
Speaking about the deal during a campaign rally, Trump said his administration would not approve the merger “because it’s too much concentration of power in the hands of too few."
The would-be trust buster then vowed to find a way to separate Comcast Corp. (NSDQ: CMCSA) from NBCUniversal, a merger that was consummated several years ago.
While some observers speculated that these remarks were probably just campaign-trail bluster, Bloomberg reported on Thursday that one Trump confidant claims the president-elect remains opposed to AT&T’s deal, as does Trump’s chief strategist, Steve Bannon.
Of course, as we’ve seen with previous speculation surrounding Trump’s positions, third-party accounts of his actual thinking on a matter aren’t worth all that much.
Even so, the news sparked a modest selloff among cable, media, and telecom companies.
Shares of Time Warner currently trade at an 11.7% discount to the deal price of $107.50 per share. The stock’s narrowest discount on a closing basis was 10% and occurred earlier this week.
Although shares of AT&T are down about 3.9% from their high earlier this week, they’re still up 12.6% from their post-election low.
Meanwhile, AT&T has already found a way to possibly sidestep the Federal Communications Commission (FCC), the quasi-independent federal agency that wields the most power when reviewing such deals.
The companies believe that the merger will not require any of Time Warner’s FCC licenses to be transferred to AT&T in order to conduct normal operations.
The media giant could also divest such licenses prior to the deal’s close, a move that would require the FCC’s review, but one that would theoretically be separate from any consideration regarding the merger.
Though both the U.S. Dept. of Justice (DOJ) and the FCC exercise oversight on such deals, the FCC is the entity that would hold the proverbial (and actual) trump card.
That’s because the DOJ’s review is limited to anti-trust concerns, and the agency is unlikely to reject a deal between two entities that operate in different industries.
The FCC, however, has far broader latitude when reviewing such deals and has blocked similar tie-ups in the past.
So if the merger can avoid FCC scrutiny on a technicality, then it would save both companies a lot of potential heartache.
As for Trump’s own attitude toward the deal? We don’t need to rely on anonymously sourced articles. We expect the freewheeling president-elect will offer his latest take soon enough via Twitter.
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