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When the US Department of Justice sued this week to stop AT&T’s $85.4bn takeover of Time Warner, it set up one of the biggest US antitrust showdowns since it moved to block the telecoms group’s attempted $39bn takeover of T-Mobile USA in 2011.
AT&T dropped that earlier deal months after the government’s lawsuit was filed: this time, it says it will go all the way to ensure that its deal goes through. “The rule of law is at issue here,” said Randall Stephenson, AT&T’s chief executive, framing its predicament as standing for a broader principle.
The DoJ had presented a case that stretched “the very reach of antitrust law beyond the breaking point”, he argued. “When the government suddenly, and without notice or any due process, discards decades of legal precedent, businesses large and small are left with no guideposts. Every business combination or significant investment becomes subject to the whim of a regulator. ”
The timing of the DoJ’s intervention has raised eyebrows — not least because the two sides were “within weeks of signing a consent decree that would have remedied any of the perceived concerns that they have with this combination”, according to one person briefed on the discussions. Multiple sources with knowledge of discussions between the companies and the DoJ allege that the opposition to the deal is politically motivated — and entirely related to Time Warner’s ownership of CNN, the cable news channel that is despised by President Donald Trump.
The DoJ has rejected that claim: on a press call a DoJ official was asked if there had been any direction from the White House and replied “none that I’m aware of”. Regulators “remain open to working with AT&T on meaningful structural relief to solve our concerns”, he said, adding that the department had confidence in its case. “We will prevail in court. There has not been a transaction that poses this level of competitive harm until [what] we have today. So that’s [why] we’re going to court.”
If successful, the DoJ’s intervention would prevent the vertical merger of America’s largest telecoms group with the owner of CNN, HBO and Warner Brothers. Legal experts said the government had a steep hill to climb if it was to stop a deal that does not involve two direct competitors.
The DoJ has “a very tough case in front of them”, said David Balto, a former policy director of the Federal Trade Commission. The government has claimed that AT&T would “hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for Time Warner’s [cable television] networks”. It added in its court filing that “the merged company would have the power to make its video distributor rivals less competitive by raising their costs”.
But Mr Balto said there was little precedent to suggest that this would happen. “There isn’t much evidence here that firms have engaged in the kind of exclusionary conduct that the DoJ claims AT&T will do,” he told the FT.
George Hay, professor of law and economics at Cornell University, said the DoJ case was “basically a single theory, based largely on economic theory, not case law, because there is no case law”. He said the fact that the DoJ’s complaint was signed by more than 30 staff members was “pretty unusual” and suggested that “a lot of dedicated career lawyers worked on this and clearly believe it has merit”.
AT&T chief executive Randall Stephenson: ‘This throws a great deal of uncertainty on anyone contemplating M&A’ © Reuters
Supporters of the deal have pointed to Comcast’s successful 2011 $30bn takeover of NBCUniversal, which similarly combined a large cable distributor with a producer of television and film content — and which was cleared by regulators, with conditions attached.
Still, some analysts suggested that a vertically merged company with the scale of AT&T-Time Warner would wield significant power.
“It is . . . very easy to imagine how a vertically integrated media company could use its proprietary access to content to thwart either existing competition or, perhaps even more importantly, emerging competition by withholding ‘must-have’ content,” MoffettNathanson analysts wrote in a research note. “The DoJ’s argument is simple: AT&T cannot lawfully be given this market power, because the incentives for them to abuse it are self-evident.”
The burden of proof is on the justice department to convince a judge that the deal would harm consumers and competition. “We believe the DoJ’s task to prove the anti-competitive nature of the deal is likely to be quite tough,” Barclays analysts wrote in a note to clients. The DoJ’s intervention could have other consequences, they added, with months of litigation “likely to delay not only the closing of this deal but also . . . likely to chill other M&A activity across the space until there is regulatory clarity”.
They echoed comments by Mr Stephenson, who warned that the lawsuit “has the whole world questioning what [regulators] will, can and cannot do.”
“To . . . suddenly, without any notice just upturn 50 years of precedent on a transaction like this can have nothing but a freezing effect on commerce in general,” he said.
Additional reporting by Barney Jopson and Tom Braithwaite