Finance

Report: Justice Wants Turner or DirecTV Sale as Condition for AT&T-Time Warner Approval

Time Warner shares down 5% as latest deal wrinkle emerges 11/08/2017 2:31 PM Eastern

The path to an AT&T-Time Warner merger got even murkier Wednesday after The New York Times reported that the U.S. Department of Justice would seek a divestiture of either Turner Broadcasting or DirecTV as a condition for its approval of a deal.

UPDATE (4:15 p.m.): AT&T’s Stephenson: 'No Intention' to Sell CNN

The Times, citing sources familiar with the companies, said the DOJ has asked that AT&T sell either Turner Broadcasting – Time Warner's group of cable channels that includes CNN, the news network President Donald Trump has repeatedly accused of airing “fake news” – or DirecTV, the satellite TV giant that AT&T purchased in 2015.

The possible conditions of the merger would appear to remove any purpose for doing the deal. When it announced the pairing in October 2016, AT&T said the inclusion of the Time Warner cable channels would fuel future over-the-top video offerings. DirecTV also is a core part of that strategy, with its more than 20 million pay TV subscribers. Its programming deals also were the foundation for AT&T’s over-the-top service DirecTV Now, which currently has about 1.5 million subscribers.

Once thought to be a relative shoo-in for regulatory approval – neither company has overlapping businesses – the path toward the finish line has been less clear in recent weeks. Earlier today, AT&T chief financial officer John Stephens said the timing of the Time Warner deal’s approval, once expected before the end of the year, is “now uncertain.”

AT&T said it had no comment on the Times story. But in a statement today, AT&T came out in support of President Trump’s tax plan, which is facing stiff resistance in Congress, stating that it will invest an additional $1 billion in its U.S. operations in 2018 if the plan currently before the House is signed into law.

“With a rate of 20% combined with provisions for full expensing of capital expenditures for the next five years, we’re prepared to increase our investment in the United States,” AT&T CEO Randall Stephenson said in a statement. “If the House bill is signed into law, we’d commit to increase our domestic investment by $1 billion in the first year in which the new rates are in place. And research tells us that every $1 billion in capital invested in telecom creates about 7,000 good jobs for the middle class.”

AT&T and Time Warner will most likely sue if the government puts such onerous conditions on the deal.

Candidate Donald Trump had threatened that a President Trump's Justice Department would block an AT&T/Time Warner deal as too much consolidation.

But a condition requiring a spin-off of CNN, which is part of Turner, would bring the President's attacks on the news media into play since CNN has been the President's favorite whipping-outlet in Tweets slamming it as fake news, though it has plenty of company including the New York Times and Washington Post and broadcast network news operations.

Even deregulatory Democrats have warned against blocking or hobbling the deal if it is seen as retribution for news coverage the President disagrees with.

An AT&T source said, without comment on whether the report about Justice was accurate, that the company’s lawyers could find no legal justification for requiring a CNN spin-off.

Given that, if Justice did sue to block the merger without a spin-off, AT&T might just take its changes and litigate the suit.

Justice can’t nix a merger, but it can file suit to block it in court as a violation of antitrust laws.  That case is harder to make with a vertical merger like AT&T—primarily combining distribution and content assets—than other combos.

Time Warner shares were down 5.5% ($5.20 per share) to $89.46 each in afternoon trading, while AT&T shares were down 12 cents each (0.4%) to $32.95 per share.  

Washington Bureau Chief John Eggerton contributed to this report

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