A U.S. district court judge ruled on June 12 to allow AT&T Inc.'s proposed $85.4 billion purchase of Time Warner Inc. to proceed in a decision expected to lead to greater convergence in the media and communications sectors.
In the highly anticipated ruling, U.S. District Court Judge Richard Leon approved the deal with no conditions. AT&T now hopes to close the transaction on or before June 20.
Leon's decision follows a six-week trial during which lawyers for the U.S. Justice Department and the two companies sparred over whether the proposed deal would hurt competition in the video marketplace. The Justice Department argued that the combination would give the resulting entity too much power in the pay TV and online video marketplace, leading to higher prices and fewer choices for consumers. AT&T disputed that claim, saying the synergies created by the merger would benefit consumers and lead to greater innovation.
AT&T General Counsel David McAtee said in a news release following the June 12 ruling that he was pleased the court "categorically rejected the government's lawsuit."
Assistant Attorney General Makan Delrahim, head of the Justice Department's antitrust division, said the agency will closely review the judge's opinion and consider its next steps. "The pay TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner," he said.
Industry and legal experts are divided on whether the Justice Department will appeal the decision. Independent media consultant Brad Adgate said in an interview that Leon seemed to discourage such a move by telling the government it would be unjust to seek a judicial stay of the merger while pursuing an appeal. Without a stay, the deal would be allowed to close, meaning the two companies would begin to operate as a single entity.
Peter Carstensen, a professor emeritus at the University of Wisconsin Law School who previously served as an attorney at the antitrust division of the U.S. Department of Justice, also noted Leon's comments regarding a stay, saying in an interview, "I don't think the Justice Department likes to be told things like that," adding that Leon's remarks could get the department's "dander up."
"That may result in there being more pushback," Carstensen said, saying the Justice Department could still seek an immediate stay so as to have time to read Leon's full opinion and look for its "weak points."
Adgate said the Justice Department also may feel some political pressure to pursue an appeal given that President Donald Trump previously voiced his opposition to the deal. During his 2016 presidential campaign, Trump said that the transaction would result in "too much concentration of power in the hands of too few."
In the weeks leading up the judge's ruling, it became clear the outcome of the case would shape the future of the media and communications markets in immediate and meaningful ways. Comcast Corp., for instance, confirmed in May that it was in advanced stages of drafting an offer for key 21st Century Fox Inc. assets — but it delayed releasing a final offer as the company's deal strategy was widely believed to hinge on whether AT&T and Time Warner prevailed in their antitrust case. With Leon ruling in favor of AT&T and Time Warner, Comcast is expected to formally submit an all-cash offer for the Fox assets June 13, directly challenging Walt Disney Co.'s agreement for the same Fox media holdings.
"Comcast and Disney are ready to move forward with more programming consolidation and there is likely more beyond that," Kagan analyst Neil Barbour said in an interview. Kagan is a media research group within S&P Global Market Intelligence.
Adgate agreed, saying, "I think we're going to see more of these types of deals."
He noted that the media and communications sectors are increasingly converging to combine content with delivery. "The industry is moving this way. There is a lot of competition out there for people's eyeballs and there is a lot of competition for where marketers can invest their dollars. I think the judge realized that," Adgate said.
The court ruling also paves the way for the launch of AT&T Watch, a proposed skinny over-the-top package that will cost $15 a month and not feature any local programming or sports-only channels. AT&T executives earlier indicated Watch would only launch if the Time Warner deal closed successfully, with AT&T Chairman, CEO and President Randall Stephenson saying at a May 15 investor conference: "This is pretty much entertainment and the Time Warner content. We obviously can't launch this until the Time Warner deal is closed." He added: "As soon as Time Warner is closed, we'll be launching this."