Good morning.
Rumors that the federal government would intervene to stop the $85 billion AT&T—Time Warner merger have been borne out, and the implications are not encouraging.
According to various reports, the DoJ has decided that the combined company will have to divest either Turner Broadcasting or DirecTV to get approval for the deal. That’s despite a broad consensus that the merger is a sensible reaction to changing media trends, a ‘vertical’ one that extends internal value chains rather than a ‘horizontal’ one that crowds out competition.
AT&T is preparing to fight any such demands in court, on the grounds that the intervention is politically motivated.
The red flags around this story are almost as numerous as those that greeted Donald Trump in Beijing yesterday.
For one, Turner Broadcasting is home to CNN, President Trump’s ‘Fake News’ nemesis.
For another, Makan Delrahim, who was appointed to head the DoJ’s antitrust division less than two months ago, had said before he joined the Trump administration that he didn’t think the merger represented a big antitrust problem (while his boss was against it from the start).
Some will fear that the request aims essentially to silence, or at least tone down, CNN’s criticism of the administration by bringing it under new ownership. That may owe something to paranoia, but it’s hard to deny that a business unit like Turner will struggle to survive as an independent company in the age of streaming. That’s one of the big reasons for the merger in the first place, after all. The Disney-Fox talks reported earlier this week also make it clear that this is a sector reacting to structural weakness, not exploiting structural strength.
A further sign that this is more than just your usual antitrust squabble is how this has now spilled out into the media. The Wall Street Journal‘s sources told it that AT&T’s CEO Randall Stephenson had offered to sell CNN to get the deal through. That forced Stephenson to take the unusual step of having to deny the claim outright yesterday.
More news below.
| Geoffrey Smith | |
| @geoffreytsmith | |
| geoffrey.smith@fortune.com |
Top News
• The Great Firewall Is No Match for Trump
President Donald Trump said he “didn’t blame China” for the way it shaped its trade policy, but otherwise kept to his mantra that its trading relationship with the U.S. is unfair and needs rebalancing. Trump, who had apparently worked out how to get around the Great Firewall that blocks Twitter in China, also managed to repeat his pressure on China to bring North Korea to heel—albeit any results of that won’t be seen until the trip is over. Fortune
• An Ill Wind for Turbine Makers
Shares in the world’s two biggest listed wind turbine makers tumbled after bleak quarterly reports that highlighted the impact of proposed cuts in U.S. subsidies. Vestas Wind Systems, the world’s biggest maker of onshore turbines, fell 20% after it cut its estimate for free cash flow. Current operating margins were also lower than hoped. Siemens Gamesa, an offshore specialist that had already announced 6,000 job cuts this week, fell another 4%. In addition to the troubling U.S. outlook, the two face increasing competition from China and an indefinite delay in new project approvals in India. FT, metered access
• What Could Possibly Go Wrong?
Facebook did perhaps the most Facebook-y thing ever. Its remedy to the phenomenon of “revenge porn” is to ask users to send it nude photos of themselves so that its network can record their digital ID and automatically stop them being reposted. In its defense, given the amount of data that people already share with it without reading and inwardly digesting the T&Cs, you can see how some at the company might think this is sensible. For anyone else, well… Fortune
• Just When Eddie Lampert Thought Things Couldn’t Get Worse
Sears Holdings, the owner of Sears and Kmart, announced its worst quarterly sales decline in recent times and said it may have to sell off another 140 stores, not least to cover a $407 million transfer to its underfunded pensions plan. Comparable sales in the third quarter were down 17% on the year at Sears and 13% at Kmart. Fortune
Around the Water Cooler
• Icahn’s Refined Tastes Prompt Subpoena
Carl Icahn has been subpoenaed by the U.S. Justice Department over his efforts to overhaul the U.S. biofuels program during his time as an unpaid adviser to President Donald Trump. Icahn‘s dual role as adviser and investor had raised eyebrows earlier this year, notably in the case of CVR Energy, a refiner in which he was invested, and which stood to benefit from changes he advocated to regulations governing the promotion of biofuels. Fortune
• TripAdvisor Runs out of Feet to Shoot
TripAdvisor compounded its self-generated problem with allegations of covering up sexual assaults on tourists. CEO Steve Kaufer was called out by customer Kristie Love for falsely claiming in a LinkedIn post that the company had apologized to her for deleting a review in which she detailed an assault on her at a Mexico resort (two more women were subsequently assaulted at the same resort). TripAdvisor has now put warning banners on the listings for hotels and other destinations which are accused by users. Fortune
• Burberry Follows Lauren, the Hard Way
Shares in Burberry tanked 11% in London after its new CEO Marco Gobbetti laid out a plan to take the brand back upmarket. Sacrificing volume for the sake of margin has worked for competitors such as Ralph Lauren, but the associated restructuring costs, at 110 million pounds ($144 million) are nearly double its previous estimate. The plan, which will cut non-luxury stores from Burberry’s distribution, also comes with a hefty increase in capex. Fortune
• A Bumpy Start for Vegas’ Self-Driving Bus
Las Vegas debuted a high-profile self-driving bus project yesterday—and it promptly collided with a truck. But don’t be dismayed: the future will be with you soon enough. The crash was the truck driver’s fault. The shuttle was stationary at the time. “Had the truck had the same sensing equipment that the shuttle has, the accident would have been avoided,” the city’s officials said. The French-designed shuttle, called Arma, can carry up to 12 passengers, and is built without a steering wheel or brake pedals. If you think that criticizing human weakness is a bit rich from a city that makes its living by catering to it, you are being churlish and need to get out of the way. The future does not have sensors capable of seeing you. Fortune
Summaries by Geoffrey Smith; geoffrey.smith@fortune.com
@geoffreytsmith