Shares in both AOL and Time Warner slipped Tuesday following press reports that the
Federal Trade Commission
is likely to impose significant conditions on their impending merger. But at least some of the conditions are likely to center on customer access, an issue on which the companies have already broadly agreed to make amends. And observers say there's little in the latest news that suggests the merger runs serious risk of coming apart.
"I think the main impact would be a chorus of groans," comments
analyst Henry Blodget, in an email, about any delay. "I don't think you'd see much valuation impact -- AOL would likely be trading at a higher level as a stand-alone company," he writes. "The sooner the deal closes, the quicker they can begin working on synergies, strategy, etc., but the good news is the companies function well on their own."
Blodget, who says he thinks the deal will close on time in late fall -- most likely November -- says the closing would have to be several months late for the tardiness to have any impact at all.
On that point, Scott Cleland, CEO of the independent
, agrees. "Merger timing seldom is clockwork," Cleland says. "The only delays that matter are ones that are a quarter or two."
Gathering No Moss
Of course, that's not to say the deal couldn't fall apart. One investment banker not involved with the deal says continuing delays in a deal (think of
failed attempt to buy
) can result in "negative inertia" that can kill the deal. "Any large M&A where there's regulatory concerns -- sometimes those things create almost a self-fulfilling prophecy," says the banker, speaking on the condition of anonymity.
Before their merger is approved, Time Warner and AOL will have to run a regulatory obstacle course past the Federal Trade Commission, the
Federal Communications Commission
. What's new about this weekend's news, says Cleland, is the extent to which FTC staffers are opposed to the deal unless certain conditions are imposed.
Also worth considering is how the stocks reacted to the deal when it was unveiled in January. AOL, despite a recent rally, remains sharply below its predeal price, as investors continue to frown on the resulting shareholder dilution. Time Warner, meanwhile, is some 30% above where it traded the day the deal was announced, suggesting that its shares may be more vulnerable should the deal encounter serious resistance.
But AOL bull Blodget says he doesn't think that reports that the FTC will require AOL to sell its stake in
DirecTV are anything new, and he says he sees no downside to the possible requirement that AOL Time Warner will have to guarantee other Internet service providers access to subscribers through its cable systems.
An AOL spokeswoman didn't immediately respond to a request seeking comment. At midafternoon Tuesday, AOL's stock was down $1.38, or 2.4%, to $56.38, and Time Warner was off $3.44, or 4.1%, to $80.94.