Why does the stock price decline when a seemingly promising acquisition is announced & agreed on?
It is not unusual for the acquiring company's stock to fall in any time of merger announcement. Some of it has to do with the fact the acquirer is going to either take on new debt to pay for the cost of the acquisition or they will need to issue new shares. Either is dilutive to shareholder value, so this is "baked into" the process.
In the instant case, I'm not sure AT & T is making the right move. Because of its acquisition of DirecTV several years ago, there's little question it will have to shed assets in order to satisfy regulators, and there's a high probability that competitors will move to block the merger for obvious reasons. There is also the distinct possibility that regulators (either U.S. or European) may block the merger altogether, in which case there's undoubtedly a provision in the merger agreement requiring AT & T to pay a substantial fee to Time Warner.
There's a great deal of uncertainty surrounding acquisitions like this. After all, it wasn't helpful to Time Warner when it merged with AOL, and there's no assurance this merger will work out any better.
The long and short of it is that nobody knows how this merger will play out, and the amount of attention and resources necessary to complete it will be an enormous drain and distraction to AT & T, so there's the possibility its businesses may suffer somewhat. Since nobody knows the extent of divestitures AT & T will have to make, it creates uncertainty.
This is what you're seeing in their stock price.
Markets are generally skeptical of the benefits of mergers. History shows that the benefits of merger claimed by the company doing the purchase rarely materialise.
If on the day prior to the announcement the markets value company A as 50 billion and company B as 20 billion, then the market values the combined company at 50 + 20 = 70 billion if they see no benefit in merger.
Therefore, if company A is willing to pay a premium of, say, 5 billion for company B, then the market will mark down company A by about the same amount in order to maintain a combined value of 70 billion.
Of course this assumes that the markets see no real benefit in merging the two companies. This is not always the case.
"Buy the rumor, sell the news". That's often a good strategy, since most people tend to be optimists rather than pessimists, and reality turns out to be worse than they hoped for.
It's also a good strategy, because if the majority of other investors think it's a good strategy, the price will rise when they all try to buy, and fall when they all try to sell.
It's a material change to the company's financials, why wouldn't there be a change in the company's value?
In general the company being acquired sees a value increase. This happens for a variety of reasons, most obviously the concept that a premium on the value will ensure shareholder approval of the acquisition.
In general the company making the acquisition sees a decline in value. This happens because of a usually material change in the financials. Maybe a big spend down of cash, maybe a big issuance of new shares, maybe a new debt obligation, maybe the company being acquired has new liabilities etc. Usually companies are valued based on some multiple of forward earnings and a big change in the financial situation of the company will change it's forward net earnings.