Published On: Tue, Jun 12th, 2018

AT&T-Time Warner merger approved, setting stage for more consolidation

WASHINGTON—A federal judge approved AT&T’s $ 85-billion (U.S.) purchase of Time Warner on Tuesday, handing the telecom giant a massive victory that could hamper the ambitions of U.S. regulators seeking to block big corporate mergers.

The case — one of the most closely watched antitrust trials in decades — is viewed as a bellwether for other deals waiting in the wings. From Comcast’s bid for 21st Century Fox to CVS’s acquisition of Aetna, massive corporations increasingly have sought to expand their reach by buying up companies in different lines of business. The judge’s decision, which is allowing AT&T to merge with Time Warner without conditions, shows the federal government may struggle to rein in such mergers.

A federal judge has signed off on AT&T’s $  85-billion (U.S.) Time Warner merger in a decision that could encourage further consolidation among large corporations.
A federal judge has signed off on AT&T’s $ 85-billion (U.S.) Time Warner merger in a decision that could encourage further consolidation among large corporations.  (Michael Nagle / Bloomberg)

“I think for business, in general, it’s going to be seen as a green light for mergers. I think you’ll see a lot of people using it as an opportunity to push mergers they may have been thinking about,” said Ed Black, president of the Computers and Communications Industry Association, a trade group in Washington, D.C., that represents companies such as Amazon, Facebook and Google.

In handing down his ruling, federal judge Richard Leon said that the Justice Department — whose antitrust chief, Makan Delrahim, brought the rare case — failed to provide sufficient proof that the deal would harm competition or consumers. He took issue with the government’s analysis that the merger would result in higher prices for consumers, telling a packed courtroom that the findings “rested on improper notions.”‬

And Leon also warned the U.S. government against seeking a stay on the merger if it brings an appeal for the purpose of trying to stymie the deal. For the moment, DOJ has not indicated its next steps.

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To AT&T, however, goes the grand prize: a premier piece of the entertainment world. The decision means the telecom giant will now control highly sought-after programming — including Game of Thrones, the Harry Potter movie franchise and CNN — as well as the infrastructure that delivers that content to tens of millions of living rooms televisions and smartphones. Beyond its wireless network and internet service, AT&T acquired DirecTV in a $ 67-billion deal in 2015, which also had the blessings of government regulators.

“We are pleased that, after conducting a full and fair trial on the merits, the Court has categorically rejected the government’s lawsuit to block our merger with Time Warner,” said David McAtee, the general counsel of AT&T. “We look forward to closing the merger on or before June 20 so we can begin to give consumers video entertainment that is more affordable, mobile, and innovative.”

Time Warner’s stock rose nearly 5 per cent in aftermarket trading. AT&T’s stock was down about 2 per cent.

Ahead of the ruling, public-interest advocates had expressed deep fears that AT&T’s victory would only quicken the rapid consolidation of the media, telecom and tech industries.

“Everyone’s looking at here what happens in entertainment,” said Gene Kimmelman, the president of Public Knowledge. “But if Google and Facebook get the signal the court will not let the government block vertical transactions, then the door is open for them buying more artificial intelligence firms, more messaging firms, more data-gathering firms. I think what you see is everybody bulks up in their space.”

Their concerns only grew heightened after Monday, with the official end of federal net neutrality rules that required broadband providers, including AT&T, to treat all web traffic equally — and not prioritize their TV, movie or other content offerings over those of competitors.

“The consumer just doesn’t benefit in any way shape or form. I believe this is going to lead to higher prices,” said Gigi Sohn, a former top aide to the Federal Communications Commission under former president Barack Obama. “Already, with their cable systems, they control what people see and hear. Now they can do the same on broadband … (and) favour their Time Warner programming.”

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The decision amounts to a stunning loss for Delrahim, U.S. President Donald Trump’s chief antitrust regulator. In a statement, Delrahim said he was “disappointed” in the ruling but stopped short of saying his division would appeal, saying only that it would “consider next steps in light of our commitment to preserving competition.”

Months before Trump nominated him to the Justice Department’s leading antitrust position in 2017, Delrahim even had expressed an openness to the combination of AT&T and Time Warner, predicting in an interview on Canadian television that it might not trigger any regulatory concerns. Trump, however, repeatedly had blasted the merger, due in no small part to his opposition to CNN, which is owned by Time Warner. Delrahim maintained that he had not been instructed by the White House as to how to handle the transaction.

The White House did not immediately respond to a request for comment.

Speaking after the ruling, AT&T’s chief lawyer, Daniel Petrocelli, sidestepped many questions about potential political interference. Instead, he said the companies were frustrated that the resolution took 18 months, but were relieved that the fight was finally over.

“It was a case that should never have been brought,” Petrocelli said. “The government could present no credible proof in defence of its theories.”

The U.S. government has rarely challenged vertical deals like AT&T’s bid for Time Warner on grounds that they represent companies seeking to enter new industries. Another federal antitrust agency steered clear of a formal probe of Amazon.com, for example, when the e-commerce giant sought to buy national grocery chain Whole Foods in 2017. (Amazon chief executive Jeff Bezos owns the Washington Post.)

But the DOJ’s loss could spur companies to gobble up their competitors in the same sector — transactions known as horizontal deals — particularly as they seek to compete more aggressively with AT&T. A looming example is the pending merger of Sprint and T-Mobile, a $ 26-billion combination of the country’s third- and fourth-largest wireless companies.

These firms have argued since announcing the deal in April that the only way they can build out the next generation of wireless networks, and keep the industry competitive, is if they combine forces. A person familiar with Sprint and T-Mobile’s thinking, though not authorized to speak on the record, indicated the companies planned to point to AT&T’s victory as they seek to sell their merger over the coming months to the FCC and DOJ.

“That will really force AT&T and Verizon to have to work harder,” the person said of the merger. “It will allow T-Mobile to compete in spaces or sectors that they really haven’t done so today. That faster broadband, that faster wireless network, will be a realistic alternative for delivering content that T-Mobile can’t do today.”

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AT&T-Time Warner merger approved, setting stage for more consolidation