Shares of drugstore CVS Health jumped on Wednesday, a day after a U.S. District Court decided to permit AT&T’s bid for Time Warner in what many on Wall Street are considering a tacit go-ahead for other so-called vertical mergers.
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The ruling may clear potential roadblocks ahead of the $69 billion tie-up between CVS and health insurer Aetna, a deal confirmed by the companies in late 2017; shares of CVS climbed 2.5 percent in premarket trading Wednesday morning.
Though the outcome in the six-week AT&T trial will undoubtedly encourage a wave of deal-making in the media and telecommunications industries, it will also likely facilitate future vertical mergers, whereby one company mergers with another in its supply chain.
“U.S. District Court Judge Richard Leon ruled that AT&T’s acquisition of Time Warner is legal and did not impose conditions on the merger’s approval, which we think bodes well for CVS’ pending acquisition of Aetna,” wrote Cowen’s Charles Rhyee in a note.
The Department of Justice sued to block the media deal, claiming that AT&T, owner of satellite television provider DirecTV, could abuse its market share by charging rival distributors more for Time Warner content and thereby harm consumers.
“Given the favorable ruling of the AT&T/Time Warner merger, we expect shares of CVS to trade up tomorrow, as well as shares of ESRX [Express Scripts] which is being acquired by CI [Cigna],” stated the Cowen analyst in the note Tuesday.
CVS Health expects the deal to close in the second half of 2018.