AT&T wins court approval to buy Time Warner over Trump opposition
Deal is seen as turning point for industry upended by companies like Netflix
AT&T won approval from a U.S. court on Tuesday to buy Time Warner Inc. for $85 billion US, dealing a blow to U.S. President Donald Trump's administration, which tried to block the deal, and likely setting off a wave of corporate mergers.
The planned deal, approved without conditions, is seen as a turning point for a media industry that has been upended by companies like Netflix and Google, which produce content and sell it online directly to consumers without requiring a pricey cable subscription.
Distributors including cable, satellite and wireless carriers all see buying content companies as a way to add revenue.
The decision comes despite criticism from Trump, a frequent detractor of Time Warner's CNN and its coverage.
The deal was announced in October 2016 and quickly denounced by Trump.
The ruling could also prompt a cascade of pay TV companies buying television and movie makers, with Comcast's bid for some Twenty-First Century Fox assets potentially the first out of the gate. Other deals waiting in the wings involve Verizon and CBS, T-Mobile and Sprint.
The merger, including debt, would be the fourth largest deal ever attempted in the global telecom, media and entertainment space, according to Thomson Reuters data. It would also be the 12th largest deal in any sector, the data showed.
"I conclude that the government has failed to meet its burden of proof," District Court Judge Richard Leon told the court. He called one of the government's arguments against the deal "gossamer thin."
In a scathing opinion, the judge urged the U.S. government not to seek a stay of his ruling, saying it would be "manifestly unjust" to do so and not likely to succeed.
Shares of AT&T fell about 1.3 per cent in after-hours trade following the decision, while Time Warner rose more than five per cent. Comcast was down three per cent.
"The court is the last place you want to accomplish your M&A [mergers and acquisitions] goal but in this case it was a sweet victory," said Jeffrey Logsdon, managing director of JBL Advisors in California.
"This will be a blockbuster summer for media mergers!" said Mary Ann Halford, senior adviser to OC&C Strategy Consultants.
The U.S. Justice Department filed a lawsuit to stop the deal in November 2017, saying that AT&T's ownership of both DirecTV and Time Warner would give AT&T unfair leverage against rival cable providers that relied on Time Warner's content, such as CNN and HBO's Game of Thrones.
Leaving the courtroom, Makan Delrahim, head of the Justice Department's antitrust division, said that he would read the judge's opinion before making a decision on an appeal.
Asked about the decision, he said, "Obviously we don't agree."
AT&T general counsel David McAtee said the company plans to close the deal on or before June 20.
The company argued during the six-week trial that the purchase of Time Warner would allow it to gain information about viewers needed to target digital advertising, much like Facebook and Alphabet's Google already do.
AT&T and other wireless carriers need to find new sources of revenue as the mobile phone market stagnates and more customers abandon pricey cable and satellite packages for streaming services they can watch on their phones or televisions.
A combined AT&T-Time Warner could also get a boost from Monday's official end of net neutrality — the Obama-era rules that barred broadband and wireless companies from favouring their own services to the detriment of rivals like Netflix. AT&T and Verizon now can give priority on their networks to their own movies and TV shows, while hurting rivals such as Amazon, YouTube and future startups.
"The impact from this decision will have wide-reaching ramifications across the telecommunications, media, and tech industry for decades to come," said GBH Insights analyst Dan Ives.
Costs from deal
The government estimated costs to industry rivals, such as Charter Communications Inc., would increase by $580 million a year if AT&T owned Time Warner.
To assuage the Trump administration's criticisms, AT&T offered to submit pricing disagreements with other pay TV companies over Turner's channels to third-party arbitration.
The companies further offered not to black out programming during arbitration for seven years.
Before the trial started, AT&T lawyers said the Time Warner deal may have been singled out for government enforcement but Judge Leon of the U.S. District Court for the District of Columbia rejected their bid to force the disclosure of White House communications that might have shed light on the matter.
The deal cost AT&T's top lobbyist, Bob Quinn, his job in May after it became public that AT&T had paid Trump's personal lawyer Michael Cohen $600,000 for advice on winning approval.
The ruling could also have implications for CBS's potential tie-up with Viacom, which is already uncertain because of a lawsuit between CBS's controlling shareholder, Shari Redstone, and its board.