UPDATED to include comments from AT&T CEO Randall Stephenson: Not so fast, AT&T.
After a flurry of corporate blue-skying over the past month since the official close of the company’s merger with Time Warner, antitrust regulators at the Department of Justice have filed an appeal of the judge’s decision that allowed it to happen.
The appeal comes after the $85 billion deal was sealed, meaning a positive outcome for the government in its latest effort would entail a breakup not unlike those AT&T has been forced to cope with before in its century-plus of corporate empire-building.
The terse notice of appeal (read it here) is signed by Craig Conrath, who led the government’s legal team during the six-week trial of the lawsuit in the spring. The notice contains none of the reasoning behind the appeal, though the DOJ is likely to continue insisting that the merger disadvantages both consumers and rival companies. The trial in Washington, which featured a frequently packed courtroom and testimony from CEOs Randall Stephenson and Jeffrey Bewkes, was the first involving a “vertical” merger — with AT&T’s distribution meshing with Time Warner’s content operations — in several decades. Stephenson said he had been bracing for an extended legal battle.
“We were expecting this,” Stephenson said on Fox Business Network. “Nobody should be surprised at this.”
Less than two weeks ago, the same regulators who are doubling down on their opposition to AT&T-Time Warner reached a settlement with Disney that checks a major regulatory box for its planned purchase of 21st Century Fox assets. Unlike AT&T-Time Warner, that deal is a “horizontal” one, combining similar operations such as film and TV studios and surely costing many thousands of jobs. Similarly, the DOJ reportedly is poised to bless Sinclair Broadcast Group’s long-gestating deal to acquire Tribune Media. (Unlike Fox-Disney or AT&T-Time Warner, the Sinclair deal relies on FCC approval given the broadcast licenses involved.)
The DOJ’s appeal clouds the prospects of Comcast submitting a counteroffer to Disney’s $71.3 billion bid for much of 21st Century Fox’s film and television assets. Like AT&T-Time Warner, a combination of Fox and the Philadelphia-based Comcast would represent a vertical merger that would bring together media assets with the nation’s largest cable TV distributor and a leading provider of high-speed internet access in the U.S.
“This makes it more unlikely that Comcast could get a deal through the regulatory process,” and media analyst Laura Martin of Needham & Co. “And makes it more likely that shareholders will vote to close the Disney deal, which is both financially higher now and with greater certainty of closing.” Disney and Fox have scheduled shareholder votes on the merger for July 27.
Another respected media analyst, Michael Nathanson, all but declared Comcast out of the running.
“Given the absence of a follow-up Comcast bid for Fox, the approval from the DOJ and the breaking news that the DOJ is appealing Judge Leon’s approval of the AT&T-Time Warner merger, we would think that there is a high degree of likelihood that Disney will acquire Fox,” Nathanson wrote.
Executives at AT&T, who had announced the acquisition in October 2016, wasted no time implementing their long-laid plans after the June 12 ruling by U.S. District Judge Richard J. Leon. Within 48 hours, they officially closed the transaction, agreeing with regulators to erect firewalls between the distribution side of AT&T and the Turner Broadcasting unit. A new logo for WarnerMedia was unveiled, with its chief John Stankey holding town hall meetings at Warner Bros, Turner and HBO headquarters.
“The court’s decision could hardly have been more thorough, fact-based and well-reasoned,” AT&T general counsel David McAtee said in a statement. “While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances. We are ready to defend the court’s decision at the D.C. Circuit Court of Appeals.”
Makan Delrahim, an appointee of President Donald Trump who heads the antitrust unit, did not rule out the possibility of an appeal in the aftermath of the decision, but few expected the DOJ to follow through.
The DOJ, heeding unusually explicit warnings by Leon in his decision, declined to seek a stay and cause further delays. Instead, it allowed the merger to go through, and many observers and analysts noted at the time that it likely would raise the bar for success as a result, with a breakup of a merged company being more difficult to pull off than just stopping it from happening.
Delrahim’s decision to appeal is likely to rekindle speculation that Trump ordered the lawsuit seeking to block the merger last fall largely as an act of revenge against his longtime foe, CNN, a unit of Turner. The DOJ has denied any link, and AT&T lawyers were barred by Leon from raising that issue at trial. Even so, it has struck many industry observers as curious that he called Rupert Murdoch to congratulate him on the now-$71 billion Disney deal barely a month after his DOJ filed a historic lawsuit against a deal that he complained would put “too much power in the hands of too few.”
Sill, the Justice Department’s appeal comes a week after AT&T’s DirecTV unit raised the monthly fee for its internet-delivered DirecTV Now service. AT&T CEO Randall Stephenson insisted, at trial, that consumers wouldn’t see price increases as the result of the telecom giant’s acquisition of Time Warner.
AT&T shares, which had lost about 15% of their value during the trial as uncertainty shadowed the transaction, gained 1% during the trading day but immediately retreated about 1.5% after hours.