As tech company gains pushed overall markets to record-setting highs, shares in AT&T, which is preparing for an epic regulatory showdown with the government, lost nearly 1% on the day as investors pondered the impact of a dream deferred.

Shares finished at $34.32, within sight of their 52-week low and more than 10% where they were in October before the U.S. Department of Justice said AT&T would have to shed key Time Warner assets, possibly CNN, in order to win approval.

President Donald Trump, whose constant attacks on CNN have prompted speculation that he is orchestrating the eleventh-hour objections to the deal by the DOJ, told reporters at the White House this afternoon he opposed the merger. “I always felt that was a deal that’s not good for the country,” he said, adding, “I’m not going to get involved — it’s litigation.” (When he pledged not to get involved it wasn’t clear if he meant via Twitter — already legal experts are scrutinizing his many CNN tweets to see if, as with his crusade against immigration, they could come back to haunt him.)

Time Warner
Associated Press

Time Warner, still widely seen as a plum acquisition should the government prevail and the deal fall through, saw its shares perk up 2% to finish at $89.55. While that level is still well below the $100-plus realm when the merger was announced in October 2016, the stock has steadily inched up $3 in the past week.

Reaction on Wall Street has been a swirl of frustration and confusion. While opinions are sharply divided about who would win a legal battle, many investors and analysts see the biggest damage being done to the overall M&A market, not specifically to either company looking to merge.

“The direct financial implications of the deal not being approved are relatively mild,” said a note this afternoon from Moody’s, the credit ratings agency. “Should AT&T abandon the transaction and not change its capital allocation or pursue an alternate deal, it is likely that Moody’s would confirm AT&T’s senior unsecured rating at Baa1 with a stable outlook.”

If the DOJ succeeds in blocking the deal, “it could harm, but not derail, AT&T’s long term strategy to bundle video,” the note continued. Without owning content, AT&T would have less cost leverage, as in its current, pre-merger state.”

Tom Eagan, an analyst with Telsey Advisory Group, warned of “collateral damage” from the DOJ’s action, which will “likely hurt returns” for Time Warner shareholders. Time is a pivotal metric. Eagan’s models assuming a 75% likelihood of the deal going through show an annualized rate of return for Time Warner that is twice that if it takes eight months.

Mergers 21st Century Fox Comcast Sony
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The other complication is determining the other giant moving piece, which is 21st Century Fox. While the DOJ action has undeniably had a “freezing effect,” as AT&T boss Randall Stephenson said yesterday, the outcome of the case looms large for other major media players. Given the nature of the government’s argument against AT&T-Time Warner, a comparably “vertical” company like Comcast or Verizon would likely need to lay low on any Fox transaction, leaving Disney in prime position.

As to the legacy effect of an AT&T-Time Warner decision, Cowen analyst Doug Creutz offered perhaps the day’s most intriguing scenario, suggesting a settlement before trial is a distinct possibility. The reason? Personal self-interest — and no, not Trump’s. Makan Delrahim, who was sworn in as head of the DOJ’s antitrust division in late September, is not a career Washington regulator, Creutz wrote in a note to clients.

As such, “we continue to find it surprising that Mr. Delrahim, who has already transitioned back and forth from the DoJ to being a lobbyist for the private sector once, and we suspect likely will do so again after moving on from his current role (he is only 48), would seek to overturn over four decades of precedent and create new major antitrust case law that could be used to block vertical mergers in the future. This doesn’t seem to us to be a resume line that would be broadly welcomed by future prospective private sector employers. Because we generally think people act in their perceived self-interest, we still tend to believe this suit will be settled before any trial is completed, even if AT&T is unwilling to agree to any major divestitures.”