United States District Court Judge Richard J. Leon has ruled in favor of AT&T in the governments antitrust suit to block AT&Ts proposed merger with Time Warner . That decision matches word on the street over the past few weeks, and delivers a stern rebuke to the Trump administration, which had opposed the deal from its earliest days. The decision was made following the close of markets in New York, and after-hours trading was muted to the decision. In light of todays decision, Comcast, which has been eyeing its own content creator takeover of 21st Century Fox, will likely move forward with a bid as early as tomorrow. In October 2016, AT&T announced its plan to acquire Time Warner for $85.4 billion, and a total of $108 billion with debt. The DOJ moved to block the merger in March, arguing that the merger would reduce competition and hurt consumer choice. The nuances of this case are important, as the implications of this decision reach far beyond the individual businesses of AT&T and Time Warner to the vast media landscape as a whole. First off, its worth noting that the overall goal of antitrust regulations is to protect the consumer from unfair business practices that may arise from a consolidation of power within a single company. But size isnt necessarily whats most important in these types of cases. In fact, sometimes a merger can help competition and consumer choice, as is more often the case with vertical mergers. A vertical merger is when two companies who provide different or complementary offerings join forces, giving consumers access to a more comprehensive set of services, at a lower price, while still generating profits. Thats not to say that vertical mergers get through regulatory approval free and clear — the FTC has fought 22 vertical mergers since 2000 — but they receive less scrutiny than horizontal mergers. AT&T-Time Warner is considered a vertical merger, as AT&T is a content distributor and Time Warner is a content creator. But the overall landscape complicates the decision a great deal. There are only a handful of companies in this space, and they are some of the most powerful companies in the world. AT&T itself is the largest telecom provider in the world, and via DirecTV, it is also the largest multichannel video programming distributor in the U.S. Time Warner, meanwhile, owns channels like TBS and TNT, HBO and Warner Bros., not to mention the assets to live sports and news orgs such as the NBA, MLB, NCAA March Madness and PGA. The DOJ has argued that this type of consolidation would give the merged AT&T-Time Warner the ability to raise prices, thwarting the competitions ability to compete by forcing them to raise prices to maintain carriage rights. The government has also argued that the newly rolled back net neutrality rules would no longer protect AT&T from, say, throttling Netflix if it didnt purchase and distribute Time Warner content. On the other side, AT&T and Time Warner (big as they may be) face steep competition from the FAANG companies (Facebook, Apple, Amazon, Netflix and Google), all of whom have made video a top priority. In fact, CNNMoney reported that AT&T-Time Warners counsel Daniel Petrocelli made the argument that traditional media orgs have already been left behind in the digital revolution. From the report: Petrocelli told Judge Leon that their estimates show FAANG is worth $3 trillion collectively, while an AT&T-Time Warner entity post-merger would be worth $300 billion. Were chasing their tail lights, Petrocelli said. Its also worth noting that President Trump has been publicly opposed to the deal since he was on the campaign trail. Remember, Time Warner owns CNN, which is the object of some of Trumps most focused hatred. At a campaign rally in 2016, Trump said his administration would not approve the deal, raising concerns over political interference. The government has argued that Trump did not communicate with antitrust officials over the deal and that their choice to fight the merger was not influenced by the White House.
( 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 bit.ly/2Jxx6qE, 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.