Why Amazon, Time Warner, B/E Aerospace, and More Are Trending

Time Warner Inc (NYSE:TWX) and AT&T Inc. (NYSE:T) are both in the red despite the latter announcing this weekend that it has agreed to buy the former for $85.4 billion. According to the deal’s terms, Time Warner shareholders will receive $53.75 in cash per share and $53.75 in AT&T equity per share, good for a total value of $107.50 per share. That final price could change a little depending on the average price of AT&T around the time the deal closes. If the telecom’s share price is below $37.41, Time Warner shareholders will only get 1.437 shares of AT&T for each share of Time Warner they own. If the telecom’s price is above $41.35, Time Warner shareholders are only eligible to get 1.3 shares of AT&T for each share of Time Warner they own. As for why AT&T would want to pull the trigger on the deal, its management expects the deal to be accretive to adjusted EPS and free cash flow in year one.

Despite the premium, Time Warner is down because some traders doubt that the deal will be approved. AT&T is down because some traders don’t like the fact that the company is paying a premium and other traders are going short for the sake of merger arbitrage. Incidentally, AT&T also reported its third quarter results on Saturday, announcing consolidated revenue of $40.9 billion, adjusted EPS of $0.74, and free cash flow of $5.2 billion. The company’s board also raised its quarterly dividend to $0.49 per share from $0.48. 63 funds in our database were long Time Warner Inc (NYSE:TWX) at the end of June, while 55 were shareholders of AT&T Inc. (NYSE:T).

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