1) The Motley Fool handicaps the odds of a Johnson & Johnson (JNJ) spinoff in 2017. The basic premise is that JNJ has multiple segments with diverging sales trends (at least recently) so why not set one free. After playing through a few scenarios, the author ultimately suggests that the medical device business get the boot leaving the parent company with the pharma and consumer brand businesses. As further support, he notes that Abbott (ABT) did a somewhat similar (questionable) and rather large spinoff back in 2013 which has subsequently rewarded shareholders. I guess lightning strikes twice? There is not a whole lot there and after spilling all that digital ink, the author ultimately concludes that ‘the odds of a spin-off are really low’. Oh well.
2) One of the largest pending M&A deals right now is AT&T’s (T) $85b takeover of Time Warner (TWX). Wells Fargo analyst Jennifer Fritzsche suggested the wireless company may need to divest assets, specifically cable news operator CNN, in order to obtain government approval. The note seemed to receive additional attention due to the politics surrounding President Trump. He hasn’t been a big fan of certain CNN journalists and he also recently sat down with AT&T CEO Randall Stephenson. Following that meeting though, Mr. Stephenson insisted the proposed merger wasn’t even discussed and he also quickly shot down the spinoff speculation saying it ‘would make no sense’. Taking it even further, he added ‘I don’t know why we’d even talk about that…it doesn’t seem relevant to approving a deal like this. What would be the competitive issue that you’re remedying with spinning off CNN? There are not competitive issues with owning CNN.’
While that certainly makes sense, it’s not surprising for the CEO of an acquiring company to take that public stance. There is often additional scrutiny around media deals involving news operators and what really matters is if the government disagrees. They may ultimately lose the case (or not have one at all), but would Mr. Stephenson really pull away from the deal or risk a lengthy trial if that was what the government asked for as a concession? This should be an interesting situation to watch and it’s worth pondering whether or not an independent, standalone CNN is really set up for success.
Disclosure: Author is long shares of TWX.
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