The long-delayed merger of AT&T and Time Warner will be allowed to move forward, a federal judge ruled in the closely watched antitrust case. The ruling on the AT&T Time Warner deal will have a major impact not just in shaping the media and telecom industries, but also in influencing merger and acquisition activity among large companies.
Judge Richard Leon of the U.S. District Court of for the District of Columbia issued an opinion Tuesday afternoon that the deal could go through without any conditions, helping to ensure the deal will happen before a deadline set for next week.
It’s not clear whether the DoJ will appeal today’s decision or seek an injunction, but if so, it could tie up the merger in courts for months and complicate the merger’s outcome. A deadline for the deal, initially set for last October, had been moved to June 21. An appeal could force the date to be moved back again, perhaps with new demands placed on AT&T by impatient Time Warner shareholders.
AT&T offered to buy Time Warner for $85 billion in October 2016 to keep pace in a media industry being reshaped by streaming content and mobile devices. Last November, the U.S. Justice Department sued to block the merger, arguing that it would hurt American consumers with higher monthly bills and less innovation.
Since announcing the merger, AT&T’s stock has fallen 12% while Time Warner’s has risen 10%. In aftermarket trading late Tuesday, AT&T’s stock was down 1.7%, while Time Warner’s was up 4.5%.
“If there were ever an antitrust case where the parties had a dramatically different assessment of the current state of the relevant market and a fundamentally different vision of its future development, this is the one,” Judge Leon wrote in his 172-page ruling. “Small wonder it had to go to trial!”
After weighing competing visions “that couldn’t be more different,” Leon wrote, “I conclude that the Government has failed to meet its burden to establish that the proposed ‘transaction is likely to lessen competition substantially.'”
The decision represents a setback for the Department of Justice, whose antitrust chief Makan Delrahim, had argued strenuously against the merger. In a speech he made to the Open Market Institute this morning, Delrahim reiterated that the merger would hurt consumers. “The harms of that transaction,” he said, “were simply too great to accept, or try to fix with ineffective behavioral remedies.”
After the ruling Delrahim told reporters that he was “disappointed” but would review Judge Leon’s ruling before deciding whether to ask an appeals court to intervene. “We are going to take the next steps as necessary,” he said.
For its part, AT&T was cheering the decision. “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,” David McAtee, AT&T’s general counsel, said in a statement. “We look forward to closing the merger on or before June 20.”
Analysts in the securities industry had been following the merger’s fate closely because of its potential impact on other deals. Disney has bid $52 billion for most of 21st Century Fox’s assets, and today’s decision my determine whether Comcast makes its own offer, which could precipitate a bidding war.
Other media assets, such as Lionsgate, MGM, and Sony Pictures Entertainment, have been considered possible targets for media buyers. Meanwhile, shares of wireless carrier Sprint was rallying as much as 5% following the ruling amid speculation that a merger with rival T-Mobile was now more likely.
Beyond media and telecom, the ruling could affect the Justice Department’s stance toward other big deals in the works, such as CVS’s proposed purchase of Aetna. According to Thomson Reuters, 2018 has seen more than $800 billion worth of U.S. M&A transactions through May, up 71% from a year earlier. Observers are now expecting that amount to rise even higher.
During a six-week trial in March and April, the Justice Department argued that the proposed merger needed to be blocked because it would give AT&T too much leverage over competitors in the on-demand and streaming video market. That could lead to less competition and higher prices for consumers.
The Justice Department had previously offered to clear the deal if AT&T sold off DirecTV or Turner Broadcasting, which includes CNN and HBO. AT&T and Time Warner refused.
AT&T’s attorneys, meanwhile, countered that the merger was necessary for both companies to compete against fast-growing video offerings from Netflix, Amazon, and others. Moreover, they argued, the government’s case was a “house of cards,” since the economic model it relied on to argue higher prices was flawed.
Some in Washington had also suggested the case amounted to “political interference” since President Trump was a relentless critic of CNN. During the 2016 presidential campaign, Trump had vowed to block the proposed merger, “because it’s too much concentration of power in the hands of too few.”
After a ruling, a Time Warner spokesman underscored the idea of political interference, telling CNN: “This was a case that was baseless, political in its motivation and should never have been brought in the first place.”
Update: This article was updated from the original with additional information