The federal government on Tuesday lost its second court challenge to AT&T's $85.4 billion merger with Time Warner, a deal that has already begun to reshape much of the media industry.
A three-judge panel of the U.S. Court of Appeals for the District of Columbia rejected the government's claim that a lower court had applied antitrust laws incorrectly in allowing the merger to proceed. Justice Department lawyers have argued that the combination of the two companies would reduce competition and hurt consumers.
"The government's objections that the district court misunderstood and misapplied economic principles and clearly erred in rejecting the quantitative model are unpersuasive," Judge Judith Rogers wrote on behalf of the panel.
The Justice Department, which did not immediately respond to a request for comment, could choose to appeal to the Supreme Court.
AT&T can now proceed with its plan to transform WarnerMedia into a streaming-video business in its version of the television industry's go-to strategy. The company has said it would unveil several online video products by early next year, with the premium cable channel HBO anchoring a service that would feature films and TV shows from the Warner Bros. library. (HBO will continue to be available as a stand-alone service.)
That means popular movies like Wonder Woman and installments of the Harry Potter franchise could show up on the service next to TV shows like Friends and HBO hits like Game of Thrones. AT&T also plans to license some of its video properties to services like Netflix, a strategy that could undermine its own streaming product since audiences would be able to watch its shows and movies elsewhere.
The appeals court ruling was a blow to the Justice Department and its lead antitrust regulator, Makan Delrahim, a conservative appointed by President Donald Trump. Delrahim had sought a divestiture of some Time Warner assets as a condition of allowing the deal to go through, but AT&T's chief executive, Randall Stephenson, refused to make such concessions.
In a statement, David McAtee, AT&T's general counsel, welcomed the appeals court's decision, which followed a lower-court ruling in June.
"The merger of these innovative companies has already yielded significant consumer benefits, and it will continue to do so for years to come," McAtee, said. "While we respect the important role that the U.S. Department of Justice plays in the merger review process, we trust that today's unanimous decision from the D.C. Circuit will end this litigation."
By challenging the transaction in court, the Justice Department signaled that it would have an aggressive approach to so-called vertical mergers between companies that don't compete directly with each other.
In the case of AT&T and Time Warner, which has been renamed WarnerMedia, the wireless provider is considered a content distributor and the media business a content supplier. AT&T said that because the companies did not compete, the merger would yield benefits for customers like lower bills and new shows tailored for mobile devices.
The deal brought together one of the nation's largest wireless providers with a vast media business that includes CNN in addition to HBO and Warner Bros. AT&T has more than 153 million wireless subscribers and also owns the satellite TV service DirecTV.
AT&T has been operating WarnerMedia as a separate group, making it easier to unwind the business if the Justice Department were to prevail in court. The group will continue to operate as a separate division, but AT&T can now integrate it more deeply with the parent company. That will give AT&T executives direct control over Turner Broadcasting, which the Justice Department sought to force the company to sell as a condition of the deal.
AT&T had agreed to take a hands-off approach to Turner during the appeal, but it can now make staff changes at the unit and take the lead in negotiating licensing deals with cable operators like Comcast or Charter. Turner includes CNN and the cable networks TNT and TBS, which own rights to broadcast games of major sports leagues like Major League Baseball and the National Basketball Association.
After AT&T closed the deal with Time Warner in June, it quickly appointed an executive to oversee the new acquisition. The move led some people to worry that the company would foist its mechanized methods onto Time Warner. But AT&T has said it plans to preserve the entertainment giant's culture of talent and creativity.
AT&T also has to prove to its investors that it can pay off its staggering debt load of $171 billion, much more than most public companies carry. The company borrowed $40 billion to finance the Time Warner acquisition. Stephenson has said AT&T should be able to pay off about $30 billion of its debt this year.
Business on 02/27/2019