AT&T approval boosts stocks of possible merger targets

AT&T approval boosts stocks of possible merger targets

After a six-weeks-long trial, Federal Judge Richard J. Leon issued his final ruling today that AT&T can proceed with its merger with Time Warner, via The New York Times.

Regulators will still likely scrutinize similar deals, and there is no guarantee that the district court's approval of AT&T's merger with Time Warner means that other major media acquisitions would be approved, several antitrust attorneys told Reuters. A clear win for AT&T will embolden Comcast, the US's largest cable company, to top Walt Disney's $52bn bid for 21st Century Fox, the media empire controlled by Rupert Murdoch and his family.

Judge Richard Leon said the USA government failed to meet the burden of proof that the tie up between the largest U.S. pay TV operator and media entertainment giant Time Warner would harm competition. AT&T is a service provider buying up a content producer, making a single, stronger company that's better able to compete. AT&T lawyers initially sought email correspondence between Trump's White House and the Justice Department, but Leon declared that any communications were not relevant to the trial, and AT&T relented.

As one carrot to get deal approval, AT&T CEO Randall Stephenson mentioned in court that AT&T will be debuting a new skinny streaming service in the near future.

AT&T, in turn, said it needs Time Warner to have a fighting chance against tech giants like Google and Facebook. Time Warner could already make such threats, but the DOJ claims it would have greater incentive because it could benefit from some subscribers switching over to AT&T's networks (DirecTV, U-verse and DirecTV Now).

"At that point, T would need TWX's consent to further extend the merger agreement, providing TWX the opportunity to push for a sweetener [or] simply walk and pursue other options, with the positive trial court decision providing an encouraging backdrop for media M&A", Jayant wrote in a research note. Vertical mergers, such as Amazon's takeover of Whole Foods and drugstore chain CVS's purchase of health insurer Aetna, have become increasingly popular.

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Time Warner controls assets such as HBO, CNN and, most importantly, Warner Bros. The Justice Department sued to block the deal from going through in November of 2017, arguing that it would limit competition and raise prices. In fact, sometimes a merger can help competition and consumer choice, as is more often the case with vertical mergers.

But Salil K. Mehra, a professor at Temple's Beasley School of Law and an expert on antitrust, said "this is a courageous new world in which leverage issues and the data collection on individuals make it harder to predict what will happen".

Announced in October 2016, the deal was quickly denounced by Donald Trump, who as a candidate and later as president has been critical of Time Warner's CNN and its coverage.

Leon said the government's theory that the merger would give the combined company too much leverage in programming negotiations was "plagued by inconsistencies" and contradicted by the Justice Department's own evidence.

AT&T's stock fell as much as 2.5% and shares were up as much as 5.3% to more than $100 per share in after-hours trading Tuesday.

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