On Tuesday, afederal judge ruledthat the deal, which would give AT&T ownership of cable channels like CNN and HBO as well as the film studio Warner Bros., was legal without any conditions.
On Wednesday, analyst Craig Moffett said in a research note that the firm was downgrading AT&T from a “neutral” rating to a “sell” rating and lowering its price target to $28 from $35 to account for the Time Warner acquisition.
“Time Warner will be a positive for AT&T’s income statement, at least initially. But it will be a negative for the balance sheet,” Moffett wrote, adding that the combined company will carry $249 billion in debt, inclusive of operating leases and postretirement obligations. “We believe that there will be continued erosion in each of AT&T’s legacy businesses as the company doubles down on bundling (discounting).”
Given the pressures in AT&T’s legacy satellite, broadband and wireless businesses and the impact to the company’s debt ratios, “AT&T will be under enormous pressure from the credit rating agencies to de-lever,” he said.
That raises the question of whether AT&T’s dividend is safe, he wrote.
AT&T shares were down 5 percent to $32.65.
Time Warner won't save AT&T from 'continued erosion' in core businesses, says analyst