June 12, 2018 / 9:08 PM / in 10 days

Instant View: Federal judge OKs AT&T takeover of Time Warner

(Reuters) - AT&T Inc won approval from a U.S. court on Tuesday to buy Time Warner Inc for $85 billion, allowing AT&T to compete with internet companies that dominate digital advertising and providing new sources of revenue.

FILE PHOTO: An AT&T logo is seen at a AT&T building in New York City, October 23, 2016. REUTERS/Stephanie Keith/File Photo

GEORGE HAY, CORNELL LAW SCHOOL, ITHACA, NEW YORK

“The opinion is not a radical one and it will be difficult to overturn on appeal.

“In ruling that the merger could go forward, the judge did not take the approach favored by some that a vertical transaction like this could never pose a competitive problem. Rather he took the straightforward position that the evidence did not support the assumptions on which the DOJ theory of competitive harm depended.

“Therefore, he found that AT&T would be unlikely to find it profitable to withhold content from its distribution rivals and that any impact on the price of content would be negligible. The result is not a green light for all possible media mergers but will serve as a roadmap for the kinds of facts merging parties will have to assemble to make their case. And in that sense it will certainly prompt additional media mergers.

“The opinion does not take the DOJ completely out of the merger business but simply admonishes them to make sure the facts support their theory. Of course, the DOJ can seek to prevent the merger from going forward pending appeal though the judge discouraged them from doing so. Even if the merger is consummated, the DOJ can appeal the decision but it is uncertain whether they will.”

JENNIFER FRITZSCHE, SENIOR ANALYST AT WELLS FARGO, SAN FRANCISCO, CALIFORNIA:

“This ruling from Judge Leon represents the best case scenario for (AT&T & Time Warner), in our view. Not only was the deal approved, but the Judge did not impose any conditions on the merger, and went so far as to encourage DOJ not to file a stay pending appeal. We fully expect (AT&T) to close the acquisition on 6/18 (the earliest point that it can), and look for a business update shortly thereafter.”

JIM COX, DUKE UNIVERSITY LAW PROFESSOR, DURHAM, NORTH CAROLINA:

“I’m not surprised about this. The government has not had a rich history in recent years... in these vertical acquisitions. There was a lot more focus 50 years ago on industry structure... Even the business community has been questioning whether AT&T is doing the right thing.

This was a hard road to hoe for the Department of Justice, and it was a case worth bringing, but unfortunately the precedents just weren’t there. This is a judge who is very good and takes the law seriously, and he just didn’t have the stepping stones to get to where the Department of Justice wanted him to go.”

DAVID GLICKMAN, CEO, ULTRA MOBILE AND MINT MOBILE, CALIFORNIA:

“I’m not sure the judge or the Justice Department considered all the impacts this merger could have on smaller competitors,” Glickman said, who said he tried to buy an advertisement on DirecTV, but was rejected because his company is a competitor of AT&T. “At the same time, if this decision helps T-Mobile and Sprint complete their merger, that’s better for consumers.”

BURNS MCKINNEY, PORTFOLIO MANAGER WHO OWNS AT&T, ALLIANZ GLOBAL INVESTORS, DALLAS:

“I wouldn’t call it a huge victory for AT&T, it’s more that they just didn’t lose. You always wonder in these cases if there’s a winner’s curse, given the risk [AT&T] can’t get the desired synergies and they’re taking on a lot of debt with the merger.”

GENE KIMMELMAN, PRESIDENT AND CEO OF PUBLIC KNOWLEDGE, FORMER CHIEF COUNSEL FOR U.S. DEPARTMENT OF JUSTICE’S ANTITRUST DIVISION, WASHINGTON:

“This is a very disappointing result. We’re most concerned that this will open the floodgates to mergers among the largest and entertainment and transmission companies, further consolidating the power of dominant cable and satellite companies. The end result for consumers is that online video is unlikely to break the large bundles and high monthly charges that consumers have been oppressed with for decades. All video will effectively go through the portals of these dominant providers and Internet video will remain and add on to the high price of broadband and cable service.”

“It’s a very disappointing result for consumers. I think it also sends the wrong signal to the market place at a time when the public is increasingly worried about giant tech companies’ growing dominance over the market place. This unfortunately sends the signal that those companies as well can continue to gobble up adjacent properties and grow their market power.”

“This is all headed in the wrong direction for the goal of promoting more consumer choices, lower prices and greater innovation in the market place.”

BRIAN WIESER, ANALYST, PIVOTAL RESEARCH GROUP, OREGON:

“This was much what we expected would happen almost two years ago that the deal would eventually go through. Obviously, it’s not a done deal yet, it sounds like appeals are still possible. But, in terms of progressing toward the kind of outcome we always expected would occur, we are here.

Given what’s evolved over the last year in particular, it does mean there will be more M&A to the extent that there were mergers or acquisitions which were held up because they wanted to see how this plays out so, I think Comcast has already indicated it will bid for Fox, that could have happened regardless of this ruling but, it almost certainly will now.

This trend toward consolidation among conglomerates has been persistent. If AT&T had lost, that might have caused less M&A, but this keeps open the realm of possibilities of combinations.”

J.B. HEATON, ATTORNEY AND CONSULTANT ON LITIGATION AND REGULATORY PROCEEDINGS, INDEPENDENT PRACTICE, CHICAGO:

“In 18 years of legal practice, I’ve never heard a judge say you should not appeal. That’s as close to him saying the government’s case was frivolous. That’s a legal shocker. I think we’ll see now that companies will be much more confident about vertical mergers.”

NILS TRACY, ANALYST, REORG RESEARCH INC, WASHINGTON D.C.:

“The ruling ... represents a major turning point in U.S. antitrust law, as it limits the power of the federal government to block vertical mergers purely out of a desire for structural rather than behavioral remedies. This policy point has been the cornerstone of antitrust policy under the Trump administration. The decision will make it more difficult for the DOJ and FTC to block vertical deals in the future, and will likely lead to a wave of vertical M&A in the near term. This decision bodes well for other vertical deals currently under review such as (Aetna Inc-CVS Health Corp) AET/CVS, (Express Scripts Holding Co-Cigna Corp) ESRX/CI, and Twenty-first Century Fox Inc-Walt Disney Co) FOX/Disney.”

ERIC SCHIFFER, CHAIRMAN AND CEO OF PRIVATE EQUITY FIRM PATRIARCH, GREATER LOS ANGELES AREA:

“You are witnessing the single biggest day this century in the marriage of large media with giant distribution. Fox surges in interest because of this ruling with a voracious Comcast that won’t want to back down. Verizon now will go into massive hunting mode and a CBS Verizon tie-up is a real possibility. The probabilities of a Sprint/T-Mobile deal became powerfully more realistic.”

BRETT SAPPINGTON, DIGITAL ENTERTAINMENT RESEARCH DIRECTOR, PARKS ASSOCIATES, DALLAS:

“If you’re AT&T, who do you want to include in your own skinny bundle? The channels you own. This means if you’re a small content network, you have less negotiating power, because the bundler owns its own content.”

Sappington added that without conditions, AT&T doesn’t have to guarantee anything other than its promise that it will play nice with other distributors and content providers.

“That’s a big win for AT&T.”

ASSISTANT U.S. ATTORNEY GENERAL MAKAN DELRAHIM, WASHINGTON:

“We are disappointed with the Court’s decision today. We continue to believe that the pay-TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner. We will closely review the Court’s opinion and consider next steps in light of our commitment to preserving competition for the benefit of American consumers.”

DANIEL IVES, CHIEF STRATEGY OFFICER AND HEAD OF TECHNOLOGY RESEARCH, GBH INSIGHTS, GREATER NEW YORK:

“With Judge Leon ruling in favor of letting the landmark AT&T/Time Warner $85 billion deal to go ahead as planned this afternoon despite DOJ anti-trust concerns, the impact from this decision will have wide reaching ramifications across the telecommunications, media, and tech industry for decades to come.”

“For AT&T and Time Warner this is a ‘major victory lap’ as having these combined media and entertainment assets under the hood of AT&T will significantly enhance streaming endeavors and cross pollination going forward with a major shot across the bow toward other cable and wireless players as this telecommunications and media behemoth is now hitting the ground running.”

“In particular we would expect aggressive bundling of HBO, CNN, and other proprietary sports content (NBA, NCAA, MLB) from Time Warner into the AT&T network as a key incentive for current and new AT&T wireless customers.”

“With the AT&T ruling to move the deal forward, Comcast and Roberts will likely throw their hat in the ring in its quest to battle Iger and Disney for these unique entertainment assets that will propel the eventual winner to become a major streaming player and content rich behemoth for years to come.”

JEFFREY LOGSDON, MANAGING DIRECTOR, JBL ADVISORS, CALIFORNIA:

“For AT&T, birth of vision in deal to buy TWX. Death of a vision when DOJ challenged prolonged the process. Fulfillment of a vision now that the court has approved the deal. The court is the last place you want to accomplish your M&A goal but in this case it was a sweet victory.”

MARY ANN HALFORD, SENIOR ADVISOR, OC&C STRATEGY CONSULTANTS, NEW YORK:

“I would expect that the government will file an appeal to prevent a June 18th closing. If that appeal is granted, then Time Warner will want compensation for extending the merger termination date. All that being said, I know that Time Warner management is keen to get this deal done.”

“Regardless of what happens on the appeal front, expect Comcast to put forth an all cash bid in the next day or so at a premium to Disney. This will then trigger Disney coming in with a higher price. They are already lining up cash to increase that offer. The question then will be how will the Murdoch family decide which offer they take. There complexities around taxes, voting shares, antitrust concerns depending on who the winner is.”

“The other interesting factor here is that on June 15th, it is likely that the EU will ok Comcast buying Sky - this will likely lead the Sky board to recommend a Comcast-Sky deal go forward. There are still too many complexities around Fox-Sky. Assuming Disney wins Fox, Fox still has to sell Sky News as well as raise its offer for Sky to meet Comcast’s.”

“There are a lot of moving pieces. All I know is that this will be a blockbuster summer for media mergers!”

MARKET REACTION:

AT&T shares fell 2.8 percent in afterhours trading. Ahead of the ruling, its shares gained 0.5 percent to close at $34.35.

Time Warner shares gained 4.3 percent in afterhours trading. Ahead of the ruling, the stock closed up fractionally to $96.22.

Americas Economics and Markets Desk; +1-646 223-6300

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