Transactions

DOJ Suing to Block AT&T-Time Warner Deal

AT&T expected to say, in effect, 'bring it on' 11/20/2017 4:48 PM Eastern

In the first big merger review under the Trump Administration, the Justice Department has filed suit to block AT&T's $85 billion bid for Time Warner and its valuable programming assets in a deal valued at $108.7 billion including debt.

According to Justice, the combined company would "use its control over Time Warner’s valuable and highly popular networks to hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for the right to distribute those networks.  The combined company would also use its increased power to slow the industry’s transition to new and exciting video distribution models that provide greater choice for consumers, resulting in fewer innovative offerings and higher bills for American families."

AT&T had already signaled it expected a fight with the government and was ready for one. AT&T lawyers argue that the vertical merger does not require spin-offs of Time Warner programming assets--like CNN--to preserve a competitive marketplace for the distribution of content. Justice disagrees.

AT&T could still wind up settling the suit, but it is clearly not doing so out of the gate. AT&T is expected to ask for a hearing ASAP.

"Today's DOJ lawsuit is a radical and inexplicable departure from decades of antitrust precedent," said David McAtee II, senior executive VP and general counsel. "Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently."

Justice had reportedly signaled it had issues with all that sports programming on Turner nets that AT&T would control, rather than CNN.

Some Democrats, who are not fans of consolidation and might have been more upbeat about the prospect of divestiture, have signaled they think that Justice is challenging the deal because of the President's view that media outlets are out to delegitimize his presidency through fake news, a charge he has arguably leveled most often, and most vigorously, against Time Warner-owned CNN.

Trump also signaled as a candidate that he thought the AT&T/Time Warner merger should be blocked, and vowed to do so if he became President.

AT&T chairman and CEO Randall Stephenson has said he did not think that the deal's issues at DOJ stemmed from presidential interference, but in a press conference Monday announcing AT&T's decision to fight the suit, he said that given the abrupt shift in antitrust approach by Justice, he didn't know, though he could understand why it might be posited.

Antitrust chief Makan Delrahim last week appeared to be trying to build an antitrust case for requiring spin-offs unconnected with the President's preferences. He signaled in a speech to the American Bar Association that he was more partial to structural conditions--like divestitures--rather than behavioral conditions--like allowing AT&T to keep the assets, but pledging not to use them anticompetitively.

Related: Makan Delrahim Lays Groundwork for Divestiture

That would likely be helpful by way of explanation given that as a law professor at Pepperdine in 2016, Delrahim said he had no big problem with the deal.

DOJ had until Nov, 28 to file after AT&T signaled it would proceed with the deal absent some action from Justice.

Because of the way the deal is structured, there is no separate FCC review that goes beyond the antitrust issues to public interest considerations.

Given that straight antitrust review, AT&T clearly feels that on those grounds divestiture in a primarily vertical merger--between distributor and programmer--are not justified. "[T]here is no realistic possibility that AT&T’s acquisition of Time Warner’s modest portion of a rapidly-expanding content universe could possibly slow innovation or lead to higher consumer prices," the company says.

One deal critic who was not laying the blame at the feet of the President was Andrew Schwartzman, Benton Senior Counselor, Georgetown University Law School Institute for Public Representation.

"There are strong legal and policy arguments to support the Justice Department’s challenge to the proposed AT&T/Time Warner transaction," he said. " This case was investigated and drafted by dedicated civil servants who are prepared to show that AT&T would be able to use Time Warner’s content properties to stifle competition in video programming and wireless markets.

It is an insult to the career attorneys in the Justice Department to suggest that the decision to bring this suit was not based on the merits of the case. AT&T and its PR team have shrewdly exploited the President’s evident distaste for CNN to obtain sympathetic coverage from many journalists who are unfamiliar with antitrust law."

But he hardly thinks it will be a slam dunk for Justice. "This will not be an easy case for the government to win. That is all the more reason to applaud the decision to file suit in the face of strong legal and political opposition."

AT&T says Justice has not successfully blocked a vertical merger in court in the past 50 years.

Fox Business Network's Charlie Gasparino says officials at his parent company, 21st Century Fox, "are closely monitoring the DOJ action on Time Warner-AT&T to determine exactly how they’re going to proceed with planned asset sales," and argues it could make it almost impossible for a Fox asset sale to Comcast.

“Officials at 21st Century Fox, as you know, our company run by Mr. Murdoch and his sons James and Lachlan, are closely monitoring the DOJ action on Time Warner-AT&T to determine exactly how they’re going to proceed with planned asset sales. Here’s what we know from sources close to the matter," he said Monday (Nov. 20). "That the DOJ anti-trust action against the AT&T-Time Warner deal complicates the 21st Century [Fox] plan to spin off these assets. Complicates it for Mr. Murdoch, complicates it for the potential suitors, mainly Comcast and Disney. And the DOJ suit could delay any sale of assets, what sources are telling us, to Disney or Comcast indefinitely, until this thing gets settled which a lot of people think it will take four or five months."

"We’re curious to see the Justice Department’s rationale for opposing the merger,” said Tom Giovanetti, president of the Institute for Policy Innovation. "It’s hard to imagine they can muster any opposition based on markets or competition, which leaves us with what we all already suspect: The Trump administration doesn’t like CNN, and is using the heavy hand of government to persecute those it doesn’t like."

Want to read more stories like this?
Get our Free Newsletter Here!