The historical ruling has implications for every industry.
6 min read
It’s a deal — and a ruling — that will go down in history, textbooks and business power-lunch conversations. On Tuesday in federal court, Judge Richard Leon ruled against the government and in favor of AT&T, approving its $85.4 billion acquisition of Time Warner after a six-week trial.
The government’s case claimed the merger would hurt customers in part because of Time Warner’s wide breadth of content — HBO, Turner Broadcasting, Warner Bros. Entertainment and more. It predicted that, once AT&T owned those assets, it would be less likely to sell the content at a fair price through alternate distributors (for example, Comcast).
AT&T, on the other hand, argued there was no evidence that the company would raise prices on consumers — and implied it needed Time Warner to survive in a changing industry dominated by the likes of Netflix, Amazon and Facebook. The government presented a complex model for the deal’s implications, and AT&T presented a simpler model that the Department of Justice hardly rebutted, says Nicholas Economides, a professor at New York University’s Leonard N. Stern School of Business.
Leon explicitly laid out challenges facing traditional media companies in the face of tech giants. “To ignore … industry trends — trends that are transforming how consumers view video content and blurring the lines between programming, distribution and web-based competitors — would be to ignore the Supreme Court’s direction to examine this case with an eye toward the ‘structure, history, and probable future’ of this fast-changing industry,” Leon wrote. “I, of course, cannot do that!”
“Having read the opinion last night, the judge bought AT&T’s case hook, line and sinker,” says Ketan Jhaveri, co-founder of Bodhala and a former antitrust lawyer and trial attorney at the Department of Justice (DOJ). “I’m not sure every judge would have. He made AT&T’s case seem a lot stronger than it was.”
Leon urged the DOJ not to contest the ruling, but the government hasn’t yet made its next steps known. “We will closely review the court’s opinion and consider next steps in light of our commitment to preserving competition for the benefit of American consumers,” wrote Makan Delrahim, head of the DOJ’s antitrust division, in a statement.
The deal — which AT&T hopes to complete on or before June 20 — promises to shake up the media and telecommunications industries, and its implications are far and wide. Antitrust laws — which aim to protect market competition so consumers have access to competitive pricing and higher levels of innovation — can prevent companies in the same industry from merging. But this case could set precedent for future deal pitches from the likes of Comcast, The Walt Disney Company, 21st Century Fox, Charter Communications, Verizon Wireless, Apple, Google and Amazon.
Here’s what’s on the table: Disney recently made a $52.4 billion bid to acquire most of 21st Century Fox, and Comcast challenged it with a $65 billion offer on Wednesday. The AT&T-Time Warner ruling gives Comcast “more of a green light than ever before to do this,” says Jhaveri, because the judge’s opinion made it clear that even the regulatory hurdles imposed on Comcast’s previous big acquisition of NBCUniversal may not apply this time around. Comcast will likely go with a very aggressive bidding strategy — the company has already begun a bidding war for Fox’s entertainment business — but the matter of which company wins out will be up to the board of 21st Century Fox.
Beyond the telecommunications industry, the ruling upped the ante in terms of other companies pitching mergers. Deals that are currently in the pipeline, such as CVS Health acquiring Aetna, will likely get the go-ahead after this precedent. There’s a good chance that Verizon Wireless and other cable companies, such as Charter Communications, will start seeking out their own assets to buy — maybe the likes of Discovery, CBS and Viacom, Jhaveri says. The current phase of low interest rates ending combined with relatively weak antitrust enforcement gives many companies the incentive to try to merge as soon as possible, Economides says. Companies looking to be acquired should have many more “suitors” than they had last week.
The AT&T-Time Warner merger is what’s called a “vertical” deal, but there are other “horizontal” deals being processed — for example, Sprint’s merging with T-Mobile — and this ruling shouldn’t have an effect on them. But practically, it may. “When a government loses a case in such a big way, it makes them gun-shy about going back into court and potentially losing again,” Jhaveri says. There’s a chance it might be less likely to bring a case against another merger in the near future — or, at the very least, it’ll weigh any cons much more heavily.
“If AT&T lost, it would have had a chilling effect on vertical mergers,” Economides says. “Remarkably, [the] DOJ has not said anything yet about challenging the Sprint/T-Mobile horizontal merger.”
How the ruling could affect entrepreneurs
Anyone who’s exploring selling their company should be up to date on the implications. There’s no minimum threshold for pursuing antitrust cases — in fact, critics of antitrust authority say the government tends to go after smaller deals and let larger ones through.
“Say you’re an entrepreneur and you’re selling a social media app to Facebook, and you are not directly competitors but you’re in related markets,” Jhaveri says. “This deal makes it less likely that the government — at least the U.S. government — would be able to pursue its case as strongly.”
In general, entrepreneurs should worry more about building their businesses than about antitrust law. The exception? If there’s a substantial offer on the table to buy your business from a company with significant market shares, make sure your lawyers are looking at the antitrust risk of the deal. Antitrust lawsuits, Jhaveri says, can drain a startup’s resources for six to 12 months while the case is pending.