A federal judge approved AT&T’s $85 billion purchase of Time Warner on Tuesday, handing the telecom giant a massive victory that could hamstring 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 potential bid for 21st Century Fox to CVS’s acquisition of Aetna, massive corporations increasingly have been seeking 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.
“I think for business, in general, it’s going to be seen as a green light for mergers,” said Ed Black, president of the Computer and Communications Industry Association, a trade group in Washington that represents companies such as Amazon.com, Facebook and Google. “I think you’ll see a lot of people using it as an opportunity to push mergers they may have been thinking about.”
Buoyed by the ruling in the AT&T case, Comcast is expected to submit a bid for 21st Century Fox as soon as Wednesday, according to a person familiar with the matter who requested anonymity due to the private nature of the discussions. The offer is expected to be all cash and higher than a rival $52 billion stock proposal by Walt Disney.
In handing down his ruling, federal judge Richard Leon said that the Justice Department failed to provide sufficient proof that the deal would harm competition or consumers, telling a packed courtroom that the government’s economic analysis “rested on improper notions.”
Leon warned the U.S. government against seeking a stay on the merger if it brings an appeal. Under the merger agreement between the two companies, AT&T must close its deal with Time Warner by June 20 or pay a penalty of $500 million. Leon said that it would be “manifestly unjust” to shareholders and the business community if the Justice Department sought a stay, forcing the companies to miss that deadline. For the moment, antitrust officials have not indicated their next steps.
The ruling means AT&T gets a long-sought prize — a premier piece of the entertainment world. The telecom giant will now control highly-sought after programming – such as 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 was blessed by 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 percent in after-market trading. AT&T’s stock was down about 3 percent. Other companies seen as targets for merger activity saw spikes, as well. For example, Aetna's shares jumped 4 percent after hours, and 21st Century Fox’s shares rose more than 7 percent.
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 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 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 that 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] favor their Time Warner programming.”
The decision amounts to a stunning loss for Makan Delrahim, President Trump’s chief antitrust regulator. The Justice Department had not lost an antitrust case since 2004, and since the Nixon administration, the agency had not challenged in court a so-called vertical deal, in which companies in different lines of businesses seek to merge. In a statement, Delrahim said he was “disappointed” in the ruling, saying that his division 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 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 respond to a request for comment.
The Federal Trade Commission, the government’s other antitrust agency, steered clear of an extensive examination of another vertical merger when Amazon.com sought to buy national grocery chain Whole Foods in 2017. (Amazon chief executive Jeffrey P. Bezos owns The Washington Post.) The Justice Department is handling CVS’s vertical merger with Aetna, a deal many analysts now expect to pass scrutiny.
But the Justice Department’s loss could spread to other types of mergers, such as when companies try to gobble up competitors in the same sector – transactions known as horizontal deals. 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 antitrust regulators.
“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.”
Correction: A previous version of this story incorrectly said the FTC is handling CVS's merger with Aetna. The Justice Department is overseeing that deal.