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AT&T’s chief executive warned that the US Department of Justice’s attempt to block its planned $84.5bn takeover of Time Warner could have a chilling effect on dealmaking as the telecoms group headed for a courtroom showdown with the Trump administration.
“This throws a great deal of uncertainty on anyone contemplating M&A,” Randall Stephenson told reporters shortly after the DoJ filed a lawsuit challenging the deal. The suit “stretches antitrust law beyond the breaking point”, he said.
Antitrust challenges to so-called vertical mergers, which bring together companies that operate at separate stages of a production and distribution chain, are rare.
A DoJ official denied that the intervention set such a precedent. “It doesn’t mean we will block every vertical merger. It doesn’t mean we will block every $100bn transaction. It means in this particular case that’s what we have to do,” he said.
Mr Stephenson also nodded to suggestions that President Donald Trump’s frequent criticism of CNN, the cable news network owned by Time Warner, may have played a role in the government’s opposition to the deal, which he described as “the elephant in the room”.
Last week the FT reported that regulators had told AT&T it would need to sell Time Warner’s Turner Broadcasting cable channels, including crown jewel CNN, or its own DirecTV satellite broadcaster, in order for the deal to be approved.
“There’s been a lot of reporting and speculation whether this is all about CNN,” Mr Stephenson said on Monday. “And frankly I don’t know. Nobody should be surprised the question keeps coming up.”
The DoJ official said Mr Stephenson himself had said last week that he had never been told selling CNN would be a condition of clearing the deal. “The relief we’re seeking today will keep CNN exactly where it is right now,” the official said.
The government’s legal challenge is the latest twist in an extraordinarily public dispute over a blockbuster deal that seeks to unite AT&T, one of the US’s biggest broadband and pay-television distributors, with Time Warner, whose content extends from the premium cable channel HBO to the Warner Brothers film studio.
The DoJ’s move also raises questions over an anticipated radical reshaping of the media landscape as content owners, distributors and Silicon Valley companies jockey for scale and control in the face of technological disruption and changes in viewing habits. The outcome of AT&T’s bid is being closely watched by media investors and advisers as a bellwether of future dealmaking. Much of Rupert Murdoch’s 21st Century Fox is seemingly in play, after it held talks to sell some assets to Walt Disney and Comcast, and drew interest from Verizon and Sony.
The DoJ said it opposed the AT&T deal on the grounds that it would harm competition, leading to higher prices and slower innovation. It pointed to AT&T’s own objections to a previous tie-up uniting Comcast, the country’s largest cable provider, with media group NBCUniversal, which was approved with conditions in 2011.
A justice department official said it had been unable to agree on remedies with AT&T and Time Warner that would enable the deal to go forward, but added that it remained open to working on solutions.
“We gave a very good faith effort to try to resolve . . . the harms that the government was able to find, and still allow for portions, significant portions I would add, of this vertical merger to go forward,” the official said.
AT&T slammed the suit as a “radical and inexplicable departure from decades of antitrust precedent” and said it was “confident” that a court would allow the merger to proceed.
“The last time DoJ tried a vertical merger case was in the Carter administration and it lost that case. You have to go back to the Nixon administration to find the last time a court has actually blocked a vertical merger,” said David McAtee, AT&T’s general counsel.
The DoJ official told reporters: “Some vertical mergers can be perfectly fine. Some of them can be illegal.”
AT&T executives took a combative tone on Monday’s call, emphasising that the burden of proof was on the government to show that the transaction posed harm to consumers and competition. They played a recording of Makan Delrahim, the new head of the justice department’s antitrust division, telling a Canadian TV station last year before taking office that “I don’t see this as a major antitrust problem.”
Mr Stephenson reiterated his commitment to fighting for the deal in court and insisted that he had not and would not consider selling CNN.
“Any agreement that results in us forfeiting control of CNN directly or indirectly is a non-starter,” he said. “We do not intend to settle this matter out of expedience because the rule of law is critical here.”