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U.S. judge rules AT&T can acquire Time Warner for $85 billion

( Reuters) — AT&T Inc won court approval on Tuesday to buy Time Warner Inc for $85 billion, rebuffing an attempt by U.S. President Donald Trumps administration to block the deal and likely setting off a wave of corporate mergers. The deal, which could close next week, is seen as a turning point for a media industry that has been upended by companies like Netflix and Alphabets Google which produce content and sell it online directly to consumers, without requiring a pricey cable subscription. Cable, satellite and wireless carriers all see buying content companies as a way to add revenue. Trump, a frequent detractor of Time Warners CNN and its coverage, denounced the deal when it was announced in October 2016. U.S. District Judge Richard Leon found little to support the governments arguments that the deal would harm consumers, calling one position gossamer thin and another poppycock. The ruling could also prompt a cascade of pay TV companies buying television and movie makers, with Comcast Corps bid for some Twenty-First Century Fox Inc assets potentially the first out of the gate. The merger, including debt, would be the fourth largest deal ever attempted in the global telecom, media and entertainment space, according to Thomson Reuters data. It would also be the 12th largest deal in any sector, the data showed. In a scathing opinion, Leon concluded that the government had failed to show competitive harm and urged the U.S. government not to seek a stay of his ruling pending a potential appeal, saying it would be manifestly unjust to do so and not likely to succeed. Thats a legal shocker, said J.B. Heaton, an attorney and consultant on litigation and regulatory proceedings. I think well see now that companies will be much more confident about vertical mergers, he added, referring to deals where a company merges with a supplier. Shares of AT&T fell about 1.3 percent in after-hours trade following the decision, while Time Warner rose more than 5 percent. Twenty-First Century Fox jumped 7 percent in extended trade after the ruling on expectations that Comcast and Walt Disney Co could start a bidding war to acquire its media assets. Comcast and Walt Disney dropped 4.3 percent and 1.8 percent, respectively. Shares of other media and telecom companies also rose, including T-Mobile US Inc, Sprint Corp, CBS Corp, Dish Network Corp, Discovery Inc and Viacom Inc. This will be a blockbuster summer for media mergers, said Mary Ann Halford, senior adviser to OC&C Strategy Consultants. Shares of Express Scripts Holding Co, which is set to be bought by Cigna Corp for $52 billion, rose 4.8 percent, while shares of health insurer Aetna Inc, due to be acquired by CVS Health Corp for $69 billion, rose 3.6 percent. Opponents of the AT&T decision also predicted more deals. Consumers should fear a cascade of unchecked mergers and acquisitions to further consolidate the telecom industry resulting in less choice, fewer competitors and higher prices, Senator Richard Blumenthal, a Democrat, said in a statement. The Justice Department filed a lawsuit to stop the deal in November 2017, saying that AT&Ts ownership of both DirecTV and Time Warner would give AT&T unfair leverage against rival cable providers that relied on Time Warners content, such as CNN and HBOs Game of Thrones. Leaving the courtroom, Makan Delrahim, head of the Justice departments antitrust division, said that he would read the judges opinion before making a decision on an appeal. 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. Put me on the side of the fence of thinking that AAG (Makan) Delrahim is interested in challenging the next problematic vertical transaction, she said. Cornell law professor George Hay added that the ruling found the governments evidence lacking, rather than a broader determination of how vertical mergers affected competition. AT&T in a six-week trial argued that the purchase of Time Warner would allow it to gain information about viewers needed to target digital advertising, much like Facebook Inc and Google already do. AT&T can use the content from Time Warner to fill its streaming services DirecTV Now and soon-to-be-launched AT&T Watch, which are cheaper online video packages with fewer channels. That could give it a leg up over rival live streaming platforms that do not own content, media analysts have said. AT&T applauded the courts decision and said it expected to close the merger before the June 21 contractual deadline. The government estimated costs to industry rivals, such as Charter Communications Inc, would increase by $580 million a year if AT&T owned Time Warner. Before the trial started, AT&T lawyers said the Time Warner deal may have been singled out for government enforcement but the judge rejected their bid to force the disclosure of White House communications that might have shed light on the matter. The deal cost AT&Ts top lobbyist, Bob Quinn, his job in May after it became public that AT&T had paid Trumps personal lawyer Michael Cohen $600,000 for advice on winning approval. Burns McKinney, a portfolio manager at Allianz Global Investors who owns AT&T, said he would not say the telecoms company had won a huge victory. Its more that they just didnt lose. You always wonder in these cases if theres a winners curse, given the risk (AT&T) cant get the desired synergies and theyre taking on a lot of debt with the merger, he said.

Judge rules AT&T can purchase Time Warner

He reportedly put no conditions on the deal. Last November, the Department of Justice slapped an antitrust lawsuit on AT&T's proposed acquisition of Time Warner and the trial resulting from that lawsuit wrapped up last month. The DOJ has maintained that merging the two companies as is would threaten competition, but AT&T has said the deal won't produce anticompetitive effects and moreover, that the DOJ hasn't effectively demonstrated that it would. Today, US District Judge Richard Leon has issued his ruling on the suit and has declared that AT&T can buy Time Warner. This has been a long-running issue, as AT&T first announced its plans to buy Time Warner for $85.4 billion in 2016. The companies then entered into discussions with the DOJ last year and rumors surfaced that the agency had suggested some divestitures in order for AT&T to avoid an antitrust lawsuit. But those conversations didn't work out in either group's favor and the DOJ went ahead with its suit. At the time, AT&T called the move a "radical and inexplicable departure from decades of antitrust precedent." When the trial ended, Judge Leon suggested the parties consider some remedies both could deal with depending on how he ruled. The DOJ said in its post-trial brief that most if its concerns stem from the combination of Turner -- which owns CNN, TBS and TNT -- with DirecTV and therefore they should be split in one way or another. It proposed that either AT&T not get Turner in the deal or that it should divest itself of DirecTV prior to acquiring Time Warner. AT&T wasn't on board, saying, "Divestitures here would destroy the very consumer value this merger is designed to unlock." AT&T CEO Randall Stephenson also said last year, "You shouldn't expect that we would sell something larger [than CNN] to get the deal done. It's illogical. It's why we did the deal." Judge Leon reportedly put no conditions on the deal and the result of this case stands to have far-reaching effects on the media landscape and other groups considering or seeking vertical mergers. Most immediately, Disney's bid to buy a chunk of 21st Century Fox may be impacted as the ruling could encourage Comcast to put forward a competing bid, as it has already announced it might do. Other deals on the line include the proposed T-Mobile and Sprint merger, CVS' purchase of Aetna and Cigna's acquisition of Express Scripts. JUST IN: Statement from U.S. Assistant Attorney General on AT&T/Time Warner decision. In response to the ruling, US Assistant Attorney General Makan Delrahim said, "We are disappointed with the court's decision today. We continue to believe that the pay-TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner." He added that the DOJ would consider its next steps, which could include an appeal. "We are pleased that, after conducting a full and fair trial of the merits, the court has categorically rejected the government's lawsuit to block our merger with Time Warner," AT&T's general counsel David McAtee said in a statement. The company will now work to complete the merger by June 20th.