As a growing list of potential buyers explore talks with 21st Century Fox, any deal will hinge on the actions of a powerful player that’s not present at the negotiating table: the Justice Department.

Time Warner
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The outcome of the DOJ’s antitrust review of AT&T’s proposed $85.4 billion merger with Time Warner may determine whether media conglomerates like Comcast or Verizon make a bid for some of Fox’s entertainment assets.

AT&T
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If the Trump Administration moves to block the AT&T-Time Warner combination in court, citing anti-competitive concerns, could chill interest in Fox’s entertainment assets, say people familiar with the situation.

A regulatory greenlight would signal to media giants to continue their pursuit of Fox’s assets, including the company’s significant holdings in India and the UK. Negotiations could take as much long as six months to result in an agreement.

The level of uncertainty prompted Wells Fargo’s Marci Ryvicker to issue a report saying she flat-out doesn’t believe a Comcast-Fox deal could be completed as long as the Sword of DOJ Damocles hangs over the media business.

“We just don’t believe it. Period,” she wrote, adding the chances of any “real deal” being completed, are “exceedingly low, especially given the regulatory scrutiny over the pending AT&T-Time Warner deal.”

During this tumultuous month, the regulatory philosophy of Makan Delrahim, head of the DOJ’s antitrust division, has become more clear.

Makan Delrahim
Delrahim
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In a speech Thursday at the American Bar Association’s Antitrust Fall Forum, the appointee of President Donald Trump did not mention the AT&T deal by name. But Delrahim laid out the DOJ’s current thinking about so-called “behavioral remedies” to ensure competition — essentially imposing a set of conditions that would entangle the department and the courts for years to come and which are “challenging” to enforce.

“Behavioral remedies often require companies to make daily decisions contrary to their profit-maximizing incentives, and they demand ongoing monitoring and enforcement to do that effectively,” Delrahim said. “It is the wolf of regulation dressed in the sheep’s clothing of a behavioral decree. And like most regulation, it can be overly intrusive and unduly burdensome for both businesses and government.”

This approach cleared the way for the Comcast-NBCUniversal deal (which was approved with 150 conditions). Media insiders assumed the same rules would apply with the combination of AT&T and Time Warner, which is also a “vertical” merger where there is little overlap in business operations.

But in an odd turn of events (unless CNN is truly the irritant given Trump’s long history there), the DOJ is arguing for companies to voluntarily make themselves smaller in order to get regulators’ OK.

Delrahim describes this as a structural change that would permanently resolve anti-competitive concerns in a way that requires less government intervention.

“Despite the insignificant size and scale of legacy media companies relative to the tech behemoths they are trying to catch up to through consolidation, the DoJ appears concerned by the vertical integration of distribution and must-have programming,” wrote veteran media analyst Richard Greenfield of BTIG.

The shifting regulatory environment hangs over Fox negotiations.

Disney
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Reports first surfaced earlier this month of Disney holding talks to purchase Fox’s film and television studios, some of its cable television networks and its holdings in the streaming service Hulu, the British satellite TV provider Sky and Fox’s Star in India.

Those negotiations ended in an impasse over price.

Since Disney walked away from the bargaining table, other media conglomerates quickly formed a queue. Among those expressing interest in Fox’s assets are Comcast and Verizon, two powerful distributors with significant investments in content.

Sony Pictures CEO Tony Vinciquerra also reportedly made an inquiry — not a shocking development, since he, Sony film chief Tom Rothman and Sony Pictures Television head Mike Hopkins all hail from Fox.

A pricy entertainment acquisition would mark an unusual plot twist for the Tokyo-based conglomerate, which only recently marked a come-back after years of financial struggles.

Sony Entertainment swung to a profit during its most recent quarter, thanks to the theatrical success of Spider-Man: Homecoming, though it is still it the process of righting itself following a $1 billion write-down earlier this year.

That would seemingly make a significant investment in the business appear unlikely.