AT&T Inc shareholders who have profited for most of 2016 from owning a major telecommunications provider with a strong dividend yield are now tied to a controversial media acquisition that comes with new growth potential but also fresh risks.
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AT&T shareholders so far have panned the $85 billion cash-and-stock purchase of Time Warner unveiled over the weekend.
Since word of the acquisition first leaked on Thursday, AT&T shares have fallen 6.4 percent, their largest three-day drop since January 2009. On Monday, the shares fell 1.7 percent to close at $36.86.
Prior to the news, the stock had climbed more than 14 percent this year, outperforming a 5 percent gain for the S&P 500 index. Including dividends, the stock had returned 20 percent.
Analysts said AT&T shares would fluctuate based on the outlook for the deal, which faces a potentially hostile regulatory review made more uncertain by the upcoming U.S. elections.
"If you wanted to be invested in a wireless company or you wanted to play wireless as a theme or broadband as a theme, this to some degree takes away from that," said Colby Synesael, an analyst at Cowen & Co.
"There are clearly a lot of people who are selling the stock because this no longer meets the requirements to which they thought they were buying into before today," Synesael said.
More than 80 million AT&T shares changed hands on Friday and 100 million on Monday. This was over three times the average daily volume of the past 50 days.
Analysts also expressed caution about the debt that AT&T would take on for the deal.
"Investors are concerned that (the leverage) makes AT&T a much riskier security than it has been in the past," said Craig Moffett, analyst at Moffett Nathanson. "For a stock that has traditionally been viewed as a defensive, it is now much more exposed to both cyclical and secular pressures."
Any increased leverage could threaten AT&T's 5 percent dividend yield.
But the company has said that the acquisition would improve its dividend coverage, in addition to adding cable TV channels CNN and HBO, as well as other media assets.
Macquarie Capital analyst Amy Yong said the shares could repeat Comcast's solid performance after it agreed to buy NBC Universal in 2009, although the current regulatory environment was more unsettled.
"I think it's going to be very similar," Yong said. "When you get the first sign of regulatory approval, I think the stock will obviously reflect that."
(Reporting by Lewis Krauskopf; Editing by Richard Chang)