AT&T-Time Warner Merger Approved

By Dawn C. Chmielewski, Dade Hayes, Dominic Patten

AT&T-Time Warner
AT&T/Time Warner

A federal judge in Washington, D.C., today cleared the way for the planned merger of AT&T and Time Warner in a landmark antitrust ruling that will likely accelerate the pace of media consolidation.

U.S. District Court Judge Richard Leon accepted the survival-of-the-fittest argument AT&T and Time Warner executives made in court: that the only way for a media company to survive in an environment increasingly dominated by technology giants is by combining movie studios, TV channels, distribution and data into one corporation.

The judge rejected the Department of Justice’s contention that combining the nation’s second largest telecommunications company and the biggest pay TV provider with one of the country’s leading film and television studios concentrates too much power in the hands of one corporation.

In a stinging rebuke, Leon concluded that Justice Department had failed to prove that the blockbuster combination would result in higher prices for consumers or harm competition.

“For AT&T and Time Warner, this is a ‘major victory lap,'” wrote technology analyst Daniel Ives of GBH Insights. “As having these combined media assets and entertainment assets under the hood of AT&T will significantly enhance streaming endeavors and cross pollination going forward.”

The decision clears the way for AT&T’s $85.4 billion merger of Time Warner, which will bring HBO, Turner and the Warner Bros. studio into the house that Ma Bell built, with alongside another recent entertainment industry acquisition, DirecTV.

“We are pleased that, after conducting a full and fair trial on the merits, the court has categorically rejected the government’s lawsuit to block our merger with Time Warner,” AT&T said in a statement. “We thank the Court for its thorough and timely examination of the evidence, and we compliment our colleagues at the Department of Justice on their dedicated representation of the government.”

AT&T said it hopes to complete the merger on or before June 20.

Leon urged the DOJ, in the strongest words, not to try to contest this ruling or ask the courts to impose a stay that would prevent the AT&T-Time Warner transaction from closing  — prolonging the outcome even further. A protracted legal battle might prompt shareholders to pressure Time Warner to haul AT&T back to the bargaining table and ask for more money.

The DOJ seemed unprepared, however, to admit defeat.

“We are disappointed in the court’s decision today. We continue to believe that the pay TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner,” said Makan Delrahim, head of the DOJ’s Antitrust Division. “We will closely review the court’s opinion and consider next steps in light of our commitment to preserving competition for the benefit of American consumers.”

Lawyers, lobbyists and PR execs for AT&T and Time Warner spilled out into the hallway outside the courtroom. They exchanged high fives and pats on the back, literally breathing sighs of relief and laughing at the ordeal suddenly over.

The camp from the DOJ immediately headed into a closed room across from the courtroom to discuss their next moves. Antitrust division chief Makan Delrahim said he was disappointed. “We obviously don’t agree.”

Another member of his team, asked about an appeal, said, “We have to think it over.”

Today’s ruling brought a near audible sigh of relief in the telecommunications and media world, where other big deals are pending — including the Walt Disney Co.’s $52.4 billion all-stock offer for much of 21st Century Fox. It all but assures that Comcast will mount a competing bid for Fox’s film and television assets, pending the outcome of the six-week trial.

“Depending on what (if any) conditions are imposed or the scope of the ruling, this decision could serve as a “green light” for other potential M&A, including Comcast’s ongoing pursuit of Fox (although regulatory obstacles could be more challenging given Comcast’s NBC ownership),” predicted UBS’s John Hodulik.

Indeed, BTIG Analyst Rich Greenfield predicts Comcast will make its all-cash bid for the same Fox assets that Disney is trying to buy “within 24- to 48-hours.” The ruling might also put smaller entertainment companies in play, including Lionsgate, which owns Starz, Discovery Communications and even Sony Pictures Entertainment.

Investors reacted positively to the news. Time Warner’s stock, which closed at $96.22, shot up 4% in after-hours trading, even though AT&T’s stock sagged slightly, falling 2% to $33.57 after the market closed. Interestingly, Disney’s stock fell nearly 2% to $102.45 after the market closed, an indication that Wall Street anticipates a rival bid from Comcast.
Dozens of reporters began lining up at dawn in the hallway outside Courtroom 18. Judge Leon is known for his dim view of the press, so his chief deputy, John Haley, issued multiple reminders to reporters and others on line that no electronic devices would be permitted inside the courtroom. Also, no one was allowed to leave the courtroom once the doors were closed at 4PM, a measure designed to prevent early breaks of the news.
“You people in the press are going to have to get your little notebooks and pencils out,” Haley said.
The strictly enforced rules led to a rare period of suspended animation for the entire media business. The ironic silence was broken only by the judge deciding the fate of a company that specializes in instantaneous digital communication.

The judge’s decision also cements the legacy of AT&T CEO Randall Stephenson, who had bet the wireless carrier’s future on its ability to capitalize on the growing importance of mobile devices as screens of choice for video viewing. The company’s stock has fallen 15% over the last two years, as wireless and pay TV subscriptions have stagnated.

It also seemingly fortifies Time Warner in the intensifying battle with media interlopers Amazon, Google and Netflix.

From all outward appearances, Time Warner was well-fortified against the Silicon Valley invaders, with powerhouse HBO and CNN networks, and attractive film catalog that includes lucrative contemporary film franchises like Harry Potter and the DC superheroes Batman, Superman and Wonder Woman, as well as classics like Casablanca, Singin’ In The Rain and Citizen Kane.

But CEO Jeff Bewkes painted the grim prospects of going it alone against tech rivals who enjoy direct relationships with customers and are able to draw from extensive viewer data to inform their content development.

“We know how many people are watching” networks such as HBO or TNT, Bewkes testified in court. “But we don’t know their names. Our direct competitors do. …. They know all sorts of things that we don’t.”

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