Markets

What Trump's Treasury Pick May Mean For AT&T And Time Warner Merger

On the campaign trail, Donald Trump made no secret that he did not like the idea of AT&T (T) buying Time Warner (TWX), saying it put "too much concentration of power in the hands of too few."

Since becoming President-elect, Trump has considerably toned down his campaign rhetoric. Trump, however, has lashed out at several media organizations, most notably The New York Times (NYT) and Time Warner-owned CNN, having recently lambasted CNN multiple times in the past few days on Twitter, leading some to wonder whether the deal could go through.

Trump's pick for Secretary of the Treasury might just be the white horse needed in Washington to get the deal done.

Steve Mnuchin, whom Trump nominated for the position, is no stranger to Wall Street, having had a long, well-known career at Goldman Sachs. This is something that Democrats and some of Trump's supporters have raised issue with, citing a need to fulfill the promise to "drain the swamp," or get rid of the usual players in Washington.

Though some of Mnuchin's policies aren't well known, outside of comments he made on Fannie Mae and Freddie Mac earlier this week, his actions speak may speak louder than his words.

Aside from being a well-known Goldman financier who also helped rescue Indy Mac during the financial crisis, Mnuchin is well known in Hollywood circles as a producer, someone who helps raise financing for films.

A look at Mnuchin's IMDB page (yes, Trump won't be the only person in his administration with film credits) shows that he has been a producer on some of Hollywood's biggest hits over the past year. Movies like Suicide Squad, Batman v. Superman: Dawn of Justice, Sully, Central Intelligence and a host of others.

What do all of those movies have in common?

They're all Warner Bros. movies. The legendary Burbank, Calif.-movie studio is owned by Time Warner.

What's even more interesting is when looking closer at Mnuchin's credits, it appears almost all of his producing credits are on Warner Bros. films. This is clearly not a coincidence, as the studio and Mnuchin have had a good working relationship, with both sides making money and getting what they want.

A great report from The Hollywood Reporter detailing Mnuchin's rise to prominence in Hollywood has a single line which should stand out for investors:

"A Mnuchin associate says the investor regards Warners as 'the preeminent movie studio' aside from Disney, yet the investment came in 2013 as Warners was entering a protracted slump."

The fact Mnuchin holds Warner Bros. in such high regard is not a fact to be taken so lightly, especially when there is a huge opportunity for investors right now.

When the AT&T-Time Warner deal was announced -- with AT&T buying Time Warner at $107.50 in cash and stock -- there was, and still is, a huge spread in the price AT&T is willing to pay and where Time Warner shares are currently trading. Over the past week or so, that spread has narrowed a bit, but there's still approximately a 15% spread between the two prices.

Sure, there are hurdles for the companies to jump over for the deal to be consummated, including some very big obstacles.

These include whether the Federal Communications Commission has jurisdiction over the deal. (It may or it may not, depending on certain actions Time Warner takes).

It would also need to be cleared by the Department of Justice for any fears of anti-trust concerns, but media analysts have said vertical deals (in which a company is not buying a competitor) tend to get approved because there is no loss of competition in the marketplace.

The deal that went through that's been most heavily cited is the NBCUniversal/Comcast deal, though the DOJ has had some reservations about letting that deal go through because Comcast has reportedly not lived up to the conditions placed upon it by the DOJ.

There are still some risks involved in the deal not going through, but that leaves investors with an arbitrage opportunity to make some money.

Given Mnuchin's proclivity and fondness towards working with Warner Bros., it's hard to see how his nomination and eventual appointment would be anything but a positive for the deal to go through.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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