AT&T Just Got Cleared to Buy Time Warner in a Massive $85 Billion Media Merger

AT&T Inc. was cleared by a judge to take over Time Warner Inc. in an $85 billion deal that the mobile-phone giant says will fuel its evolution into a media powerhouse that can go head-to-head with Netflix Inc. and Amazon.com Inc.

U.S. District Judge Richard Leon on Tuesday rejected the Justice Department’s request for an order blocking the Time Warner acquisition, saying the government failed to make its case that the combination would lead to higher prices for pay-TV subscribers. The judge put no conditions on the deal.

AT&T slipped 1.6 percent to $33.80 in extended trading at 4:46 p.m. in New York. Time Warner jumped 4.7 percent.

After nearly two years, AT&T is on the cusp of completing its acquisition of Time Warner, a deal it struck in a bid to become an entertainment giant that can feed Time Warner programming like HBO and CNN to its 119 million mobile, internet and video customers.

“We think the evidence throughout the trial was quite clear and we’re very pleased that the court saw it the same way,” said Daniel Petrocelli, AT&T’s lawyer.

Under an agreement with the government, it can close the deal in six days, unless the Justice Department appeals the decision and wins an emergency stay. Leon said he wouldn’t grant a stay if the government requested one.

Leon’s decision is a blow to Makan Delrahim, the head of the department’s antitrust division, who brought in a new enforcement approach with the case. The government’s November lawsuit was also the first major merger challenge under President Donald Trump, who railed against the tie-up when it was announced during the 2016 campaign. He vowed that his administration would oppose it, and as president, he has relentlessly attacked CNN for its news coverage.

Antitrust Theory

His criticism prompted speculation that the lawsuit was politically motivated, Still, the Justice Department’s case laid out a traditional antitrust theory: that combining two companies in different parts of a supply chain can give the merged company the ability to harm rivals.

The suit stunned investors and antitrust lawyers because it broke with years of past practice for reviewing such deals, known as vertical mergers. Rather than negotiating an agreement that imposes conditions on how AT&T can conduct business, Delrahim demanded AT&T sell businesses to address threats to competition, which the company refused to do.

After Delrahim took over the division, he announced that the department would require asset sales to remedy harm to competition from vertical deals. Leon’s ruling raises the question of whether Delrahim can successfully maintain that stance.

The Justice Department claimed that AT&T’s acquisition of Time Warner would give the No. 1 pay-TV provider increased bargaining leverage over rivals like Dish Network Corp. that pay for Time Warner programming.

Harder Bargain

Because of AT&T’s ownership of DirecTV, it can drive a harder bargain with other distributors that want Time Warner content, the government’s lawyers argued during the trial. If negotiations break down and rivals can’t secure that programming, their customers could switch to DirecTV, the lawyers said. That leverage would allow AT&T to raise prices for Time Warner content, with those costs being passed on to consumers, according to the Justice Department.

The government’s case hinged on an economic model produced by Carl Shapiro, an economist at the University of California at Berkeley, who predicted an annual price increase to consumers of at least $285 million. AT&T attacked that projection as baseless, repeatedly poking holes in the various inputs Shapiro used to calculate the estimate.

The judge indicated during the trial that he wasn’t buying Shapiro’s projection. After his testimony, Leon said he was “confused.” Further explanation from Shapiro didn’t help.

“I’m not sure I got it, but it’s too late and too hot to belabor the point any further,” the judge said.