AT&T and Time Warner Inc. stocks have lost ground today following a report that the Justice Department is weighing a lawsuit to challenge their proposed $85 billion merger.

Already near a 52-week low, AT&T shares dipped 1% to $33.25, while Time Warner fell 4% to $94.26 on the news.

D0J’s antitrust division is preparing a suit to block the deal in the event that Justice and the companies fail to reach a settlement that would address anti-competitive concerns, the Wall Street Journal reports. Talks are continuing.

Most industry observers have believed the combination of AT&T — a telecommunications giant with more than 20 million satellite, cable and OTT pay-TV subscribers — and the Warner Bros. film and television studio likely would pass antitrust muster because there’s little overlap in the business operations.

But programmers have voiced qualms about the deal, worrying that the merger would create a media colossus with control over some of the most sought-after programming — placing rivals at a competitive disadvantage.

The heightened DOJ review follows Senate confirmation in September of Makan Delrahim as head of the antitrust division. Media analysts with Cowen Research predict the news reports are a negotiating tactic by the Justice Department as it seeks to negotiate with AT&T over conditions to gain approval for the mega-merger.

“The stories indicate that negotiations are ongoing, which suggests that there are a set of conditions under which the DOJ would approve the deal,” wrote Cowen Research media analyst Doug Creutz. “We still believe that eventual approval of the deal is likely as it would be unprecedented for the DoJ to block a vertical merger.”

Nomura analyst Jeffrey Kvaal said Justice might be seeking concessions that are both measurable and enforceable.

“The closest parallel to the Time Warner transaction is Comcast’s acquisition of NBC in 2011. While that transaction was approved with concessions, the terms were very difficult to enforce,” Kvaal wrote. “Accordingly, we believe the DOJ wants to ensure it can monitor AT&T’s adherence to any concessions. “

The Justice Department could not immediately be reached for comment. In a statement, AT&T responded: “When the DOJ reviews any transaction, it is common and expected for both sides to prepare for all possible scenarios.  For over 40 years, vertical mergers like this one have always been approved because they benefit consumers without removing any competitors from the market.  While we won’t comment on our discussions with DOJ, we see no reason in the law or the facts why this transaction should be an exception.”

A Time Warner spokesman declined comment.