Hedge funds pile into Time Warner in bet on merger success

[BOSTON] The smart money may be betting that the Trump administration will fail in its bid to block AT&T's purchase of Time Warner.

A long list of hedge funds, including Seth Klarman's Baupost Group and Andreas Halvorsen's Viking Global Investors, bought Time Warner shares in the fourth quarter, ahead of a March trial that will determine whether the acquisition will be completed.

"I think this deal is going to go through and in a nutshell that is what these hedge funds are betting on," said Porter Bibb, managing partner at MediaTech Capital Partners, a New York-based merchant bank focused on the media and technology industries.

AT&T's proposed US$85.4 billion purchase of Time Warner was a year into its review by the US Justice Department when the agency decided to sue and block the deal, saying it would harm consumers.

AT&T has a March 19 court date to fight the lawsuit and is seeking communications between the White House and the Justice Department under the suspicion that President Donald Trump's disdain for CNN, which is owned by Time Warner, influenced the decision to block the deal.

Time Warner closed at US$95.37 a share in New York, roughly 11 per cent below the 2016 cash and stock terms.

Industry Darling

Hedge funds as a group own 19 per cent of Time Warner's shares, according to recent public filings, and 50 of the firms have more than 5 percent of their disclosed equity investments in the stock. Time Warner's peers have an average of five hedge funds that own more than 5 per cent, according to data compiled by Bloomberg.

Mr Klarman, a well-known bargain hunter, acquired 8.1 million shares, giving Boston-based Baupost a stake valued at US$741 million as of Dec 31. Viking, based in Greenwich, Connecticut, initiated a position with 4.6 million shares. Others making major purchases included Highfields Capital Management, which doubled its stake by adding 6 million shares, and DE Shaw & Co, which added 3.6 million shares.

Baupost declined to comment and the other hedge fund firms didn't immediately respond to requests.

BLOOMBERG