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If you want to know which mergers will be approved, follow the money

Key Points
  • AT&T may have failed to lobby successfully enough to make its Time Warner deal succeed, according to Strategas Research.
  • The firm has studied the lobbying efforts of companies in deals, and sees a direct relation between how well they lobbied for their merger and the approval.
Chief Executive Officer of AT&T Randall Stephenson (L) and Chairman and Chief Executive Officer of Time Warner Jeffrey Bewkes listen to testimony before the Senate Judiciary Committee Antitrust Subcommittee hearing on the proposed deal between AT&T and Time Warner in Washington, December 7, 2016.
Joshua Roberts | Reuters

Strategas Research analyst Dan Clifton says AT&T appears to have failed in its lobbying efforts for its Time Warner deal, and if other deals fail, it could be for the same reason.

Clifton, head of Strategas policy research, has set up a proprietary system to evaluate lobbying efforts by companies involved in mergers.

"The AT&T-Time Warner merger failed to meet the lobbying threshold where deals seem to get approved," he notes, adding the situation was "further complicated by the politics surrounding CNN and the growing antitrust pessimism building on the right and left."

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AT&T has traditionally been successful with lobbying, but it missed the mark this time. Clifton said he uses about a half dozen different metrics in his ratings of potential merger success. "There is a clear relationship between how many resources these companies are focusing on getting their deal approved and whether that deal gets approved," he said.

The Justice Department shot down AT&T's merger with Time Warner and filed suit to block the deal. The companies have vowed to fight the DOJ, which they say is making an unprecedented stand. The AT&T merger is a so-called "vertical" deal, linking related assets that complement each other but do not specifically overlap, as in other antitrust situations.

Source: Strategas Research

The deal has also been opposed by President Donald Trump, who said Tuesday it was not good for the country. Trump first voiced his opposition to the merger when he was still a candidate.

There were also reports that the DOJ was seeking to have Time Warner dispose of CNN, but government officials have pushed back on that. However, AT&T CEO Randall Stephenson said while he does not know if CNN was a factor, the companies will not shed the cable news network and will not tolerate the appearance of any assault on the First Amendment, which guarantees freedom of the press.

Clifton said his work shows that the $66 billion proposed Monsanto/Bayer AG merger should go through based on lobbying efforts. But he notes that the deal, under scrutiny in Europe and the U.S., is trading about $10 below the $128 offer price, possibly showing some doubt.

"Monsanto has made the investment," he said.

But deals where the spread is tight look more likely to succeed. Those include Calpine, which received a $15.25 offer from Energy Capital Partners. The spread between the offer price and market price is less than 2 percent away from the deal price. Announced deals between Northrop Grumman and Orbital, and Deltic Timber and Potlatch also have spreads of less than 2 percent beween the market price and the offer price.

"We're trying to capture how many resources they're putting into the deal approval relative to the size of the deal. Those companies that have a seat at the table are going to know what concessions they need to make," Clifton said. "There are some companies that try to do a merger and they have zero lobbying associated with it. When you're doing a large deal, you have to have skin in the game on the lobbying front."

Update: This version clarifies that Monsanto's merger with Bayer AG appears like it would be approved based on Strategas' lobbying study.

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