AT&T won the green light for its $80bn takeover of Time Warner on Tuesday after a federal judge in Washington rejected the US government’s argument that it would harm competition, paving the way for a blockbuster transaction that could reshape the US media sector.
Judge Richard Leon sided with the two corporate giants in what was the government’s first big antitrust litigation against a vertical merger in decades. He allowed the proposed deal to go ahead without any conditions, sending shares of Time Warner higher.
The ruling is a blow to Makan Delrahim, the justice department’s antitrust chief, whose attempt to stop the deal was cast by AT&T as being politically motivated. President Donald Trump had promised to block the transaction as a candidate in the 2016 elections.
Judge Leon had excluded the political argument from the case, but still came out comprehensively in the companies’ favour.
He rejected the government’s arguments that AT&T would harm consumers, such as by threatening to exclude Time Warner content from rival distributors and driving up prices.
“If there ever were 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,” the judge said.
He noted that Time Warner’s Turner division, which includes the TBS, TNT and CNN channels, had never turned to long-term blackouts of its networks when negotiating with distributors. And he rejected the government’s suggestion that AT&T would prevent rival distributors from using Time Warner content in marketing materials.
“At the risk of stating the obvious, this is a gossamer-thin claim,” he said.
Judge Leon also said it would be “manifestly unjust” for the government to seek a stay in the case, which could prevent his order from taking effect by a deal deadline of June 21.
The decision is a win for Randall Stephenson, AT&T chief executive, and Jeffrey Bewkes, his Time Warner counterpart, who argued that the tie-up between their two companies was necessary to compete with the likes of Google and Netflix.
While the two companies have sought to tie up the deal over the past two years, the media industry has changed rapidly. New entrants have ploughed cash into original content and entertainment companies have embarked on a wave of consolidation.
After the ruling, on the court steps, the companies’ lawyer Daniel Petrocelli told reporters the decision “was a sound and proper rejection of all of the government’s arguments to stop this merger”.
Mr Delrahim said the Department of Justice would “closely review” the opinion and consider appealing against the decision. A December court order precludes AT&T and Time Warner from completing the transaction until June 18. The merger agreement is set to expire on June 21 and the justice department could ask for an injunction while an appeal is heard.
“We are disappointed with the court’s decision today,” Mr Delrahim said. “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.”
Shares of Time Warner surged in after-hours trading, climbing 4 per cent to more than $100, while AT&T was 2 per cent lower at $33.50. AT&T said it planned to complete the merger on or before June 20.
“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,” said David McAtee, AT&T general counsel. Its lawyer Dan Petrocelli told reporters the government could present “no credible proof in support of any of its theories”.
The court ruling may spur other vertical mergers, where businesses in different parts of the supply chain combine. In particular, it was expected to give Comcast the confidence to gatecrash Walt Disney’s $66bn bid to buy assets from Twenty-First Century Fox.
Dealmakers and senior executives across corporate America had awaited the decision, warning that a loss for AT&T could chill merger and acquisition activity.
