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AT&T Defeats U.S. Bid to Kill $85 Billion Time Warner Deal

AT&T Inc. beat back another effort by the U.S. to undo its purchase of Time Warner, cementing an $85 billion deal to help it compete with Netflix Inc.

The U.S. Appeals Court in Washington said Tuesday the Justice Department failed to establish that a lower-court judge made a clear error when he rejected the government’s case that AT&T should be blocked from buying Time Warner on antitrust grounds.

Pending any further appeal, the ruling ends the Trump administration’s attempt to unravel a tie-up the U.S. said would lead to higher prices for pay-TV subscribers around the country — though it could make the DOJ hungrier for a win on the next big merger up for review, T-Mobile US Inc.’s pending $26 billion takeover of Sprint Corp., according to one analyst.

“The government’s objections that the district court misunderstood and misapplied economic principles and clearly erred in rejecting the quantitative model are unpersuasive,” the court said in a 35-page ruling.

Tuesday’s decision by a panel of three judges inflicts another loss on Makan Delrahim, the head of the Justice Department’s antitrust division, as he tries to get tough on mergers that combine companies in different parts of an industry supply chain. His lawsuit against the takeover, a deal meant to help AT&T stem an exodus of pay-TV subscribers, marked the first time in decades that U.S. antitrust enforcers had gone to trial to stop such a “vertical” merger.

The appeals court didn’t make any broad ruling on the enforcement of such deals, saying there is “no need to opine on the proper legal standards for evaluating vertical mergers” because neither side challenged those standards “and no error is apparent in the district court’s choices.”

The case was the first major merger challenge under President Donald Trump, who vowed to oppose the tie-up during the 2016 election campaign and as president has attacked Time Warner’s CNN for its coverage of him. The litigation turned the merger, announced more than two years ago, into a marathon.

The U.S. could seek reconsideration by a full panel of D.C. appeals court judges or ask the Supreme Court to take up the case. The Justice Department didn’t immediately respond to a request for comment.

“AT&T now has one less thing to worry about,” Amy Yong, an analyst at Macquarie, said. “You can never say never, but it seems senseless at this point for the Justice Department to continue to fight this.”

The government’s antitrust team turns next to the T-Mobile Sprint deal, under the new attorney general, William Barr. Unlike AT&T’s venture into the media industry, the takeover would combine two direct competitors and consolidate the wireless sector into three major players from four.

Tuesday’s ruling “is a negative” for the T-Mobile deal because “the DOJ staff will be anxious to bring a suit they believe they can win,” Blair Levin at New Street Research wrote in a note to investors. “In our experience with DOJ litigators, a loss is not something that causes them to want to retreat, but rather something that makes them anxious to have a new battle.”

AT&T said it expects Tuesday’s decision will end the litigation over the Time Warner deal. Its shares were up 0.5 percent to $31.27 at 1 p.m. in New York.

“The merger of these innovative companies has already yielded significant consumer benefits, and it will continue to do so for years to come,” David McAtee, AT&T’s general counsel, said in a statement.

The appeals court upheld a June decision by U.S. District Judge Richard Leon that the government failed to show that AT&T would be able to raise prices for Time Warner programming sold to competing cable and satellite-TV companies. The Justice Department had argued that if a rival refused to pay higher prices for CNN, say, or the Final Four college basketball tournament, and if those channels were pulled off the air as a result, some subscribers would switch to AT&T’s DirecTV business so they could watch.

AT&T attacked the government’s case as riddled with errors. The company said it had no incentive to pull programming from rivals because it would lose revenue as a result. AT&T argued the deal would bring more choice to consumers by letting it feed Time Warner content like HBO and CNN to its mobile, internet and video subscribers and go head to head with Netflix and Amazon.com Inc.

AT&T closed the Time Warner transaction on June 14, two days after Leon’s ruling, agreeing to manage Time Warner’s Turner Broadcasting as a separate business until the end of February and not play a role in setting prices for Turner programming. That agreement expires Thursday.

The case is U.S. v. AT&T Inc., 18-5214, U.S. Court of Appeals, District of Columbia Circuit (Washington).