Mega Merger: Impact of AT&T's Time Warner acquisition

Joann Johnston
June 14, 2018

However, now that the AT&T deal has been approved by a federal judge, there is precedent for such a deal and Comcast believes it won't be blocked. Post-merger, AT&T rivals like Charter Communications and Cox, which now pay Time Warner for its channels, would suddenly also become AT&T's customers.

Why this matters: Although the ruling is a huge setback for the DoJ, its almost two-year legal battle to try and block the Time Warner deal is a sign it's determined to challenge massive mergers.

"Now, more than ever, we need reinvigorated regulatory oversight of the video marketplace - such as program access and program carriage rules - to ensure that smaller distributors and programmers, and consumers, aren't harmed by an increasingly uncompetitive market", the advocacy group Public Knowledge said in a statement. The transaction will close on June 20th and makes AT&T the new owner of CNN, HBO, TNT and TBS.

"This was a defining case for antitrust enforcement in the USA", former Justice Department antitrust attorney Ketan Jhaveri said.

Makan Delrahim, the Justice Department's antitrust chief, said prosecutors were "disappointed" with the decision but did not reveal whether they would seek a stay or appeal the ruling.

The judge's decision could open the door to other mergers, including Comcast Corp. making a formal bid for the 21st Century Fox, which gained as much as 7.3 percent after the ruling and is also the target of competing interest from Walt Disney Co. In recent decades, the government's antitrust enforcement actions have focused on deals where one company threatened to dominate too much of a specific industry.

MoffettNathanson analyst Michael Nathanson also warned about the massive $249 billion in debt AT&T is taking on in the wake of the deal.

The suit stunned investors and antitrust lawyers because it broke with years of past practice for reviewing such deals, known as vertical mergers. Opposition to the Time Warner acquisition marked an aggressive turn by the Justice Department.

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The Judge's ruling included a message to the government. He rejected testimony by distributors who said they were anxious Turner would be able to raise prices. "The case the government made just doesn't show a substantial amount of consumer harm", Radia said. The government failed to prove that the merger would dampen competition and innovation and raise prices for pay TV, said Daniel Petrocelli, the companies' lead attorney in defending the merger.

I have neither. But then again, the same is true of the dozens of commentators who have been quick to pile on in the wake of the opinion, pillorying the Justice Department's decision to bring the case in the first place.

Announced in October 2016, the deal was quickly denounced by Donald Trump, who as a candidate and later as president has been critical of Time Warner's CNN and its coverage.

Trump's criticism prompted speculation the lawsuit was politically motivated.

The Justice Department is not likely to be put off by the loss, said Amy Ray of the law firm Cadwalader, Wickersham & Taft LLP, noting it had prevailed in stopping other mergers between rivals.

Bloomberg via Getty Images AT&T CEO and Chairman Randall Stephenson exits federal court in April. "It looks bad to lose", said Radia. It argued a combined AT&T-Time Warner could act like an internet company and use consumer data to offer more targeted advertising, and adapt more easily to compete with Netflix and Amazon.

The court's approval to merge with Time Warner clears the way for AT&T to launch their new $15 AT&T Watch streaming service.

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