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November 21, 2017

AT&T, U.S. Prepare to Battle in Court Over Time Warner Merger

A defiant Randall Stephenson told antitrust enforcers that AT&T Inc. would see them in court after the Justice Department sued to block the company’s $85.4 billion bid to buy Time Warner Inc.

The lawsuit “stretches the very idea of antitrust law beyond the breaking point,” Stephenson, AT&T’s chief executive officer, said at a briefing Monday. He left the door open for negotiations to find a way for the deal to pass federal muster -- but reiterated that he wouldn’t sell CNN to appease Washington, whether the deal was influenced by President Donald Trump or not. AT&T’s attorney, Daniel Petrocelli, said the company is prepared to go to trial in as few as 60 days.

It would then be up to a judge to determine whether the combination of AT&T and Time Warner would give the new entity too much power in the fast-changing media landscape, as Makan Delrahim, the new head of the Justice Department’s antitrust division, contends.

If the matter goes to court, AT&T will surely press for a decision before April 22, the date before which the two companies can walk away without penalty, said Jonathan Chaplin, an analyst with New Street Research. “AT&T is certainly willing to fight this.”

The legal challenge -- the first major antitrust enforcement action to be brought by the Trump administration -- dealt a blow to a tie-up that appeared to be sailing toward approval as recently as a month ago. That was before Delrahim was appointed to his post.

“This merger would greatly harm American consumers,” he said Monday. “It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy.”

Delrahim had pushed for a sale of either Time Warner’s Turner Broadcasting division, which owns cable channels including CNN, TNT and Turner Sports, or DirecTV, the satellite provider AT&T bought in 2015. The parties continued to talk as recently as last week.

Stephenson said he was surprised at the turn of events. “When we announced this deal, the best legal minds in the country agreed that this transaction would be approved since our companies don’t even compete with each other,” he said. The Justice Department’s action “defies logic and is unprecedented.”

The CEO briefly addressed what he called “the elephant in the room” -- whether the lawsuit had anything to do with Trump’s very public and intense dislike of CNN. “Frankly, I don’t know,” he said. “But nobody should be surprised that the question keeps coming up, because we’ve witnessed such an abrupt change in the application of antitrust law here.”

In the event of a trial, AT&T intends to seek court permission to access communications between the White House and the Justice Department about the takeover.

Attorney General Jeff Sessions said he was unable to comment on “conversations or communications that Department of Justice top people have with top people in the White House” when he was asked during a Nov. 14 House hearing whether anyone from the White House had contacted the Justice Department to interfere with or discuss the AT&T deal.

Trump spokeswoman Sarah Huckabee Sanders said Monday she’s “not aware of any specific action taken by the White House” related to the lawsuit.

The White House has traditionally stayed at arm’s length from merger reviews. Trump told reporters during his recent trip to Asia that the deal might be challenged in court.

At the briefing with Stephenson, Petrocelli, whose clients have included Walt Disney Co. and Trump, said that Delrahim had “publicly acknowledged” that the merger shouldn’t be an issue. The lawyer played a recording of an interview with Canada’s Business News Network in which Delrahim said: “I don’t see this as a major antitrust problem.”

Delrahim has said those comments are out of context and were made before he was able to thoroughly review the case.

The action Monday marks a departure from decades of Justice Department practice of approving deals that unite a supplier and a distributor in a so-called vertical transaction.

“This will not be an easy case for the government to win,” said Andrew Jay Schwartzman at Georgetown University’s Institute for Public Representation. “That is all the more reason to applaud the decision to file suit in the face of strong legal and political opposition.”

Underscoring the legal and political complexity of the case, not a single state attorney general took part in the federal government’s complaint, unusual for big antitrust cases. It’s possible states could sign on later.

Combined with Time Warner, AT&T could use its control over programming like CNN and HBO to harm rivals by forcing them to pay hundreds of millions of dollars more per year for the right to distribute the content, according to the 23-page complaint. The deal also would enable AT&T to impede competition from online video distributors, which would reduce choices for consumers, according to the complaint.

The government is open to dropping the lawsuit if the companies offer a proposal to fix the competitive harm from the deal, a Justice Department official said.

A representative for Time Warner couldn’t be reached for comment. Time Warner shares fell 1.1 percent to $87.71. AT&T rose less than 1 percent to $34.64.

The lawsuit marks the second time in six years that AT&T’s Stephenson has found himself facing government opposition in Washington over a deal. In 2011, AT&T dropped its $39 billion bid to acquire T-Mobile US Inc. after the Justice Department sued to block that merger and the Federal Communications Commission said the tie-up wasn’t in the public interest. Stephenson kept his job but received a $2.08 million pay cut that year for failing to successfully complete the deal.

Text by Bloomberg
 

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