UPDATE, 11:36 AM: National CineMedia shares plummeted about 19.5% after trading resumed following the Justice Department’s announcement that it will oppose the acquisition of Screenvision. CEO Kurt Hall told NCM employees in a memo that its court battle with DOJ “could take another four to six months” — a period during which NCM and Screenvision “will continue to operate as two independent companies.” He adds that “the biggest losers over the short and long run will be our theatre circuit partners.” Hall contrasted the 400 or so brands that have bought ads at movie theaters against “thousands of brands [that] buy TV networks and mobile video advertising platforms each year. The merger will enable us to offer a product that will be attractive to brands that have not previously purchased cinema advertising.”

Meanwhile, NCM is willing to extend its revenue sharing agreements with theaters “or make other improvements to the exhibitor terms to ensure that there is always a complete alignment of financial incentives and interests between us and our theatre circuit partners.”

PREVIOUS, 10:05 AM: Not so fast on National CineMedia’s $375M planned acquisition of Screenvision, which would enable it to sell ads for 88% of all U.S. movie theater screens. The Justice Department today filed suit at the U.S. District Court in New York to block the deal on antitrust grounds — and the companies say that they’ll fight.

“The proposed combination of NCM and Screenvision is a bad deal for movie theaters, advertisers and consumers,” says antitrust Assistant Attorney General Bill Baer. “This merger to monopoly is exactly the type of transaction the antitrust laws were designed to prohibit. If this deal is allowed to proceed, the benefits of competition will be lost, depriving theaters and advertisers of options for cinema advertising network services and risking higher prices to moviegoers.”

Specifically, the complaint says that a merger would force advertisers to pay higher rates, but leave theaters with less of the revenue. That likely would result in theaters “having to raise ticket or concession prices to consumers or forgo theater upkeep and improvements.” It also cites statements by NCM and Screenvision execs that indicate they recognized that they would find it easier to raise prices if they stop competing with each other.

Regal Entertainment, AMC Entertainment, and Cinemark own the majority of NCM shares and can block it from signing deals with independent movie theaters that involve $1M or more of upfront payments. “Such payments have been an important area of competition between NCM and Screenvision,” Justice says.

NCM chief Kurt Hall says he’s “very disappointed” at the DOJ decision but looks forward to his day in court. “Combining NCM and Screenvision will enable us to offer advertisers a better product with the broader reach, ubiquitous geographic coverage, more advertising impressions, enhanced targeting capability, and lower costs that advertising clients and their agencies seek. With a better product we will generate more advertising revenue for our theatre circuit partners.”

Screenvision CEO Travis Reid also says that the merger would preserve “all the desirable attributes of cinema advertising while allowing the combined company to compete more effectively on dimensions important to advertisers. “

The news sent shares in Carmike Cinemas – which owns about 19% of Screenvision – down about 10.2%. National CineMedia shares stopped trading at 11:00, ahead of the news. NCM has rescheduled its quarterly earnings conference call with analysts to today from yesterday.

With the merger, NCM anticipated serving 210 markets in all 50 states, with 34,000 screens that reach more than 1.1B patrons a year. Screenvision owners were to receive $225M in cash and $150M in stock.

With the Justice Department opposed to a deal, price cutting by NCM and Screenvision “will only get worse going forward, at least in the near-term,” Stifel analyst Benjamin Mogil says.

This morning, before the Justice announcement, MKM Partners’ Eric Handler called the Screenvision deal “a transformative event for NCM” but warned that softening ad sales across media could weigh on the company’s earnings for a while.