Time Warner's outside lawyer is a former top regulator deciding which deals went through.
Corrected – 10:05 a.m., 10/31/16
The media giant has hired lawyer Christine Varney, a partner at Cravath, Swaine & Moore, to make the case to the government that AT&T’s acquisition of Time Warner twx would not kill competition.
Varney is one of the nation’s top antitrust lawyers working for corporate America. But six years ago, Varney was the government’s head antitrust cop, leading the Obama administration’s effort to crack down on deals that could result in higher prices. Now, she is one of the attorneys who’s being paid big bucks to try to get the AT&T-Time Warner merger approved.
“Americans have had it with regulators like Varney, who talk a good game about holding the bad guys accountable while counting down the days until they can collect a fat paycheck from the corporations they were supposed to regulate,” Sen. Elizabeth Warren tells Fortune. “The revolving door is out of control. If we want to hold corporate lawbreakers accountable, we can’t ask their friends to do it.”
Donald Trump has already come out against the deal. Clinton has said that if she is made president, it’s a deal that she would expect her administration to look at closely. Bernie Sanders has said Washington should “kill” the deal because it will lead to higher prices and fewer choices for consumers.
All of that has raised skepticism, at least among investors, that the deal will happen. AT&T t has offered $107.40 a share for Time Warner. Nonetheless, Time Warner’s shares have been stuck slightly under $88, an unusually large spread for an M&A deal.
“The wild card in all this will be the FCC,” Roger Entner, an analyst with Recon Analytics LLC, told Bloomberg. “It’s hard to predict what the regulators will do. They are pretty much starting with a blank page.”
What may tip scales, though, in AT&T and Time Warner’s favor, could be Varney—who is arguably the nation’s top antitrust lawyer. According to acquaintances, Varney is both “whip-smart” and big-pictured. And she has the confidence of CEOs. In at least one instance, Varney got a CEO to back out of a mega-merger that had been in the works for at least three months after she told him it would be a no-go with regulators.
Sources close to the AT&T-Time Warner deal say that Varney is steadfast that the telecom and media merger will get approved. And they bristle at the idea that Varney was hired just because she used to work in government. Cravath has long worked with Time Warner, so it’s not surprising they would hire the firm to work on this deal as well, they say.
“How about Time Warner hired [Varney] because she is the best fucking antitrust lawyer around,” says someone close to the AT&T-Time Warner deal. “Not because she worked at the Department of Justice five years ago.”
Varney declined to comment.
It was considered a coup for top law firm Cravath, Swaine & Moore when it hired Varney in 2011. Varney spent five years as a government regulator, first at the Federal Trade Commission and later at the Department of Justice. By 2011, Varney was in charge of the government’s antitrust effort, including merger reviews and enforcement. She leads a staff of 800 lawyers with an annual budget of $160 million.
Varney was also a controversial hire. The attorney, who joined the DOJ in 2009, did tighten the government’s antitrust guidelines expanding the reasons for blocking deals, in the first time those guidelines had been rewritten since 1992. However, while some deals were blocked under Varney, a number of controversial deals also won approval, including Comcast‘s purchase of NBCUniversal, and Live Nation’s Purchase of Ticketmaster.
The Obama administration has gotten more aggressive in blocking big deals, stopping such deals as AT&T T-Mobile, Comcast-Time Warner Cable and Staples–Office Depot. But those all happened after Varney left her post. A mid-2012 essay in the Stanford Law Review concluded that the Obama administration had been no more tough on antitrust enforcement than the Bush administration had.
What’s more, a number of the companies that got approval to do deals from the antitrust division while Varney was there were clients of Cravath, most notably the United and Continental airline deal.
In mid 2011, Varney suddenly left the DOJ to become a partner at Cravath. She was only the fourth partner Cravath had hired from outside the firm, rather than promoting from within, in the past 50 years. Partners at Cravath make around $3.5 million a year. The superstars make even more.
Last year, legal industry website Law360 named Varney the MVP among the nation’s antitrust attorneys. She told the publication at the time, “I understand how the government will view a transaction.”
“I say, ‘This is how the government will think about your transaction in the beginning,’ which then allows me to say, ‘Here are all the issues we have to address,” said Varney.
Sen. Warren has increasingly been emphasizing the issue of a “revolving door” that runs back and forth from industry to Washington. Last year, she proposed a bill that would ban exit pay for executives leaving Wall Street or other industries to join Washington. Warren has said these exit packages are no more than payoffs so that officials “remember their Wall Street friends while they run our government.”
More recently, Warren publicly urged Hillary Clinton not to put former Wall Streeters in positions of power. “We don’t need Citigroup or Morgan Stanley or BlackRock getting to choose who runs the economy in this country so they can capture our government.”
Varney made a name for herself working with the government, but it was before she landed her job at the DOJ. In the late 1990s, Varney was hired by Netscape to represent its interests, shortly after the government brought an antitrust case against Microsoft, claiming the software giant was acting as a monopoly. Almost immediately after getting the assignment, Varney flew out to the West Coast to spend time with Netscape’s developers. Shortly thereafter, Varney took some of the Netscape programmers to Washington to meet Joel Klein, then head of the antitrust division. In front of DOJ staffers, Varney had Netscape engineers take apart the Windows operating system to demonstrate that Internet Explorer, Microsoft’s heavily pushed alternative to Netscape, could be removed from Windows, and the operating system would still work properly. Microsoft had claimed that Windows could not run without Internet Explorer.
“By any assessment Christine Varney is a talented, accomplished lawyer with an especially strong background in antitrust,” says Klein, who earlier this year became a top executive at healthcare insurance start-up Oscar.
These days, Varney is not just working on Time Warner. She’s also the lead antitrust attorney representing Reynolds American, which is evaluating a takeover offer from U.K. giant British American Tobacco. She’s also representing health insurer Cigna, which is being bought by rival Anthem.
“What makes her one of the top antitrust lawyers in the country is because she brings not just a deep knowledge of the law but also a broad outlook that comes from sitting on boards of directors and an equally deep respect for how the government process works,” says Sharis Pozen, who was chief of staff of the DOJ’s antitrust division under Varney.
Editor’s Note: An earlier version of this story incorrectly claimed Hillary Clinton had “come out against the deal.” In fact, Sec. Clinton said she will “closely” follow the Congressional hearings about the deal, “and obviously if I am fortunate enough to be president, I will expect the government to conduct a very thorough analysis before making a decision.” Also the story has been updated to include the quotes from Sharis Pozen and Joel Klein. Also an earlier version of this story carried an SEO headline that implied Elizabeth Warren was commenting on the AOL-Time Warner deal. She was talking about the AT&T-Time Warner deal. The article also initially referred to Reynolds American by an erstwhile name of that company and has been updated accordingly. Fortune regrets the errors.