A three-judge panel on the U.S. Court of Appeals for the District of Columbia Circuit ruled unanimously that the $81 billion transaction was not harmful to consumers or competitors, contrary to the DOJ’s assertions. The regulatory agency first mounted the rare challenge in a blockbuster lawsuit in late 2017 and persisted on appeal after U.S. District Court Judge Richard J. Leon allowed the merger to close in a resoundingly pro-AT&T ruling last June.
In their 35-page ruling (read it HERE), Judges Judith W. Rogers, Robert L. Wilkins and David B. Sentelle affirmed Leon’s decision, saying that AT&T had provided “real-world” data to support its contention that the deal would not result in harm. “The government offered no comparable analysis of data,” the judges wrote. “Evidence also indicated that the industry had become dynamic in recent years with the emergence, for example, of Netflix and Hulu. In this evidentiary context, the government’s objections that the district court misunderstood and misapplied economic principles and clearly erred in rejecting the quantitative model are unpersuasive.”
In a statement after the ruling, AT&T General Counsel David McAtee once again defended the deal. “The merger of these innovative companies has already yielded significant consumer benefits, and it will continue to do so for years to come,” he said. “While we respect the important role that the U.S. Department of Justice plays in the merger review process, we trust that today’s unanimous decision from the D.C. Circuit will end this litigation.”
While technically the DOJ could still appeal the case to the Supreme Court or ask the appeals court to rule “en banc” instead of as a three-judge panel, the ruling brings to a close a two-and-a-half-year saga that began when the merger was first proposed in October 2016. The companies then saw it as a clean, “vertical” deal matching a telecom giant’s distribution capability with a media mainstay’s programming muscle. It breezed through the regulatory process over the following year and was considered to be days away from final approval when the DOJ decided to seek legal recourse.
Before the DOJ suit, no vertical merger had been challenged since the 1970s. The six-week trial of the lawsuit last spring was a major media event for politicos and industry figures alike. Capacity crowds filled the Washington courtroom where a series of executives testified before Leon, who ruled individually in the non-jury proceeding.
Though still under the shadow of the appeal, the company has gone about integrating the Time Warner assets, which it rebranded as WarnerMedia. It had agreed to certain provisions pending appeal, including keeping Turner Broadcasting operations separate from DirecTV in order to alleviate concerns raised by the DOJ and competitors. They feared that AT&T would use the No. 1 satellite distribution service as a weapon when combined with large-scale programming assets. Rival Dish Network has continued to repeat those claims during the company’s ongoing carriage impasse with WarnerMedia’s HBO.
The Trump element in the case has always been circumstantial but unavoidable. As a candidate, Trump spoke out against the deal on general anti-consolidation grounds. After his election and subsequent clashes with WarnerMedia’s CNN, the sudden and aggressive move by the DOJ to file suit persuaded many in Washington and in the media business that the move was directed by Trump as revenge against CNN.
During the lower-court trial, Judge Leon took the political issue off the table, barring any evidence or testimony related to Trump’s alleged involvement in the case.
Shares in AT&T moved fractionally higher, to more than $31, but initial investor reaction was muted. The stock price remains below its level when the Time Warner deal was first announced, but it is approaching where it was last June when the lower court issued its decision. Investor enthusiasm has been tempered by AT&T’s massive debt load as well as larger-than-expected declines in DirecTV subscriber numbers, even for its internet delivered DirecTV Now service.