AT&T victory sets stage for wave of new mergers

AT&T’s victory in the landmark trial over its $85 billion deal with Time Warner could herald a new era of megamergers and hurt the government’s efforts to block such plans.

“Anytime the government loses a substantial case is a moment of optimism for deal-makers,” said Jonathan Rubin, an antitrust attorney at the Washington law firm MoginRubin.

He added that “for lawyers, it shows how you go about defending” such a deal.

{mosads}A federal judge’s decision on Tuesday to approve the proposed merger sent shockwaves through the legal and business world and was a stunning blow to the Department of Justice.

The Justice Department’s antitrust regulators must now decide whether they will appeal the decision or try to seek a stay that would disrupt the merger ahead of a June 21 deadline set by the companies.

A larger question is how the administration will deal with future proposed mergers. Those tests are quickly coming.

Tuesday’s decision was the first ruling in decades on a vertical merger, one in which the two companies are not direct competitors. But it comes as other telecommunications and media companies are setting the stage to pursue their own such megadeals.

The spotlight is already turning toward Comcast’s bid for most of 21st Century Fox’s assets. On Wednesday, Comcast announced a $65 billion dollar all-cash offer for Fox’s entertainment business. The offer outbids one from Disney, which is also seeking those assets, potentially setting up a war between the two giants.

Comcast broke into the media industry in 2011 with its purchase of NBCUniversal, a deal that the Justice Department approved with conditions attached.

There’s also been some speculation growing that Verizon, which already owns a handful of digital media brands from its acquisition of Yahoo, could try to buy CBS or Viacom.

Opponents of megamergers quickly urged the Justice Department not to step back after the ruling and to instead be vigorous in enforcing other proposed deals.

Sen. Richard Blumenthal (D-Conn.), a critic of the AT&T deal, urged the department and the Federal Trade Commission (FTC), which also reviews mergers, to continue “vigorously scrutinizing mergers with similar negative impacts on consumers.”

“Antitrust agencies should not compound the court’s mistake in this case by trimming their sails in future merger reviews,” Blumenthal said in a statement.

Henry Su, a former antitrust litigator at the FTC, also said it was likely many industry players would see the decision as a green light for future mergers.

But he added that the ruling was narrowly tailored to the specific facts in the AT&T case and might not hamper regulators as some expect.

“This opinion is very much dependent on the record that was created at trial,” said Su, an attorney at the law firm Constantine Cannon. “You can’t read too much into what happened to AT&T-Time Warner if you’re contemplating a vertical merger.”

The legal fight around the AT&T merger, which would combine one of the nation’s largest telecom companies with a broadcasting giant, was unusual in many ways.

The Justice Department broke with recent precedent in challenging the deal after decades of not fighting vertical mergers. Such mergers have typically had an easier time making it through the regulatory process, and Tuesday’s ruling was the first decision on a government challenge to a vertical deal since 1979.

The lack of precedent for the department’s lawsuit had prompted questions about whether there was political interference in the decisionmaking process from President Trump, who came out against the merger on the campaign trail and has repeatedly lashed out at Time Warner–owned CNN.

U.S. District Judge Richard Leon told AT&T before trial that it couldn’t pursue an inquiry into political interference, but questions have lingered about whether regulators’ decision to try to block the deal represents a new approach to reviewing mergers or a political vendetta.

That’s led some to downplay the impact of the ruling.

“If you believe that this case only happened because of political interference, then you weren’t necessarily going to be deterred from pursuing another deal,” said Brian Wieser, an analyst at Pivotal Research Group.

Industries have been consolidating for years, though, and regulators are sure to be confronting more vertical megadeals.

The trend toward combining media content with distribution has coincided with the rise of digital entertainment offerings from companies like Netflix, Hulu and Amazon, as well as a decline in cable subscriptions, particularly among young people.

Those industry changes were a centerpiece of AT&T’s argument in favor of its merger.

AT&T argued in court that combining its troves of data on customers with Time Warner’s content would allow it to compete against Facebook and Google in the online targeted-advertising market.

The repeal of the Federal Communications Commission’s net neutrality regulations could also allow internet providers to start prioritizing their own content over competing media companies.

“We’re running out of horizontal mergers,” Rubin said, referring to deals where companies acquire direct competitors. “Things have gotten at a horizontal level about as concentrated as they can get, so this is sort of the next step.”

Su, the former FTC litigator, says that antitrust enforcers are still learning how to challenge these types of mergers and that they have to be prepared to lose some cases along the way. He expected vigorous enforcement ahead.

“If you’re going to develop a body of case law regarding vertical mergers than you have to be prepared to bring cases and you have to be prepared to have some judges disagree with you and not see the harm,” Su said.

“I don’t doubt there may be people in industry who think this is a great climate to pose more of these deals, so I think [the FTC and the Justice Department] will be as busy as ever reviewing these mergers,” he added.

“The question is what the agencies will do about those concerns.”