AT&T-Time Warner case a detour more than a major shift in US antitrust policy, lawyers say
The Justice Department's lawsuit to block AT&T (NYSE: T) 's $85 billion acquisition of Time Warner (NYSE: TWX) seems more like a detour than a permanent shift in the federal government's antitrust strategy. The lawsuit, filed Monday in a D.C. federal court, had many lawyers and antitrust scholars wondering about the government's case. It hasn't successfully blocked a vertical deal like this in several decades, lawyers noted. And this time it appears to be partly politically motivated. President Donald Trump has made no secret of his disdain for CNN, Time Warner's cable news channel that he has frequently called "fake news." And last year on the campaign trail he promised he would not approve the AT&T-Time Warner deal under his administration. Reports earlier this month said the Justice Department was seeking a sale of Turner Broadcasting, the parent of CNN, or Time Warner's DirectTV division to win approval of the merger. AT&T CEO Randall Stephenson said Monday the issue of CNN was the "elephant in the room" with regard to the DOJ lawsuit but he promised to fight the government in court. In the meantime, he said, the action "throws a great deal of uncertainty on anyone contemplating M&A." Lawyers said Tuesday that regulators typically don't scrutinize vertical deals, which put different types of businesses that don't compete with each other under one roof. In this case, AT&T is the distribution network while Time Warner creates television shows and movies that get distributed on networks. A vertical deal earlier this year between the e-commerce giant Amazon.com (NASDAQ: AMZN) and the organic grocery chain Whole Foods Market closed relatively quickly after approval by the Federal Trade Commission. In contrast, the AT&T review has lasted longer than one year. "Subjecting the AT&T-Time Warner merger to much more rigorous review (which has resulted in litigation) than the Amazon-Whole Foods deal makes little sense," said Michael Santorelli, director of New York Law School's Advanced Communications Law and Policy Institute. "And it bolsters the perception that antitrust officials are out of touch with the realities of the modern market." The Whole Foods deal was approved before Makan Delrahim was confirmed as chief of the antitrust division at the DOJ, a position he only recently assumed. Delrahim is a former antitrust lawyer in the administration of George W. Bush and a former lobbyist. Last year, he said of the AT&T deal, "I don't see this as a major antitrust problem ." Most of the AT&T review was conducted by Justice Department staffers before Delrahim's arrival in office and it wasn't until he got there that he could examine the evidence, a government official told CNBC on Tuesday. In a letter to Sen. Elizabeth Warren earlier this month, about a month after Delrahim's Senate confirmation, a Justice Department assistant attorney general said that all investigations in the antitrust division are initiated and conducted in a "fair, professional and impartial manner."Until now, a pro-business administration had been viewed as favorable to the M&A scene, especially compared with an aggressive antitrust effort at the end of the Obama administration that resulted in the unwinding of several deals, including proposed tie-ups of Cigna-Anthem and Aetna-Humana, both shot down by a court earlier this year."A fair amount of mergers will go through," said George Hay, an antitrust expert who teaches at Cornell Law School. "I don't think we're seeing a rejuvenated antitrust effort. This is a merger that would have been looked at seriously by any administration."Whether it puts a temporary chill on the deal market remains to be seen. Globally, $3.1 trillion worth of deals have been announced in 2017, with $1.2 trillion in the U.S., according to Dealogic. That is the lowest in dollar amount since 2013, though the number of deals has been relatively consistent.Deals in the U.S. media sector in particular total $32 billion so far this year, the lowest in dollar terms since 2011.There are 99 deals pending at the moment, according to Dealogic. Four of the 10 largest, including AT&T-Time Warner, were announced in 2016. Four other deals out of the top 10 have been announced since September, including Broadcom's massive $105 billion deal for Qualcomm.And there are other deals that have been discussed but not formally announced, including a possible tie-up of pharmacy giant CVS Health with insurance giant Aetna and a sale of 21st Century Fox's movie and television production divisions to either Comcast or Disney. [Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.]The Justice Department argues that the AT&T-Time Warner combination would kill competition, raise prices for consumers and stifle innovation. But it has a tough fight ahead, lawyers said, and it faces an opponent in AT&T with deep pockets to litigate the case.Robert McDowell, a former commissioner of the Federal Communications Commission under the George W. Bush and Obama administrations, said on CNBC Tuesday that AT&T had the law on its side."It's a weak case," he said. "Get the popcorn." The Justice Department's lawsuit to block AT&T (NYSE: T) 's $85 billion acquisition of Time Warner (NYSE: TWX) seems more like a detour than a permanent shift in the federal government's antitrust strategy. The lawsuit, filed Monday in a D.C. federal court, had many lawyers and antitrust scholars wondering about the government's case. It hasn't successfully blocked a vertical deal like this in several decades, lawyers noted. And this time it appears to be partly politically motivated. President Donald Trump has made no secret of his disdain for CNN, Time Warner's cable news channel that he has frequently called "fake news." And last year on the campaign trail he promised he would not approve the AT&T-Time Warner deal under his administration. Reports earlier this month said the Justice Department was seeking a sale of Turner Broadcasting, the parent of CNN, or Time Warner's DirectTV division to win approval of the merger. AT&T CEO Randall Stephenson said Monday the issue of CNN was the "elephant in the room" with regard to the DOJ lawsuit but he promised to fight the government in court. In the meantime, he said, the action "throws a great deal of uncertainty on anyone contemplating M&A." Lawyers said Tuesday that regulators typically don't scrutinize vertical deals, which put different types of businesses that don't compete with each other under one roof. In this case, AT&T is the distribution network while Time Warner creates television shows and movies that get distributed on networks. A vertical deal earlier this year between the e-commerce giant Amazon.com (NASDAQ: AMZN) and the organic grocery chain Whole Foods Market closed relatively quickly after approval by the Federal Trade Commission. In contrast, the AT&T review has lasted longer than one year. "Subjecting the AT&T-Time Warner merger to much more rigorous review (which has resulted in litigation) than the Amazon-Whole Foods deal makes little sense," said Michael Santorelli, director of New York Law School's Advanced Communications Law and Policy Institute. "And it bolsters the perception that antitrust officials are out of touch with the realities of the modern market." The Whole Foods deal was approved before Makan Delrahim was confirmed as chief of the antitrust division at the DOJ, a position he only recently assumed. Delrahim is a former antitrust lawyer in the administration of George W. Bush and a former lobbyist. Last year, he said of the AT&T deal, "I don't see this as a major antitrust problem ." Most of the AT&T review was conducted by Justice Department staffers before Delrahim's arrival in office and it wasn't until he got there that he could examine the evidence, a government official told CNBC on Tuesday. In a letter to Sen. Elizabeth Warren earlier this month, about a month after Delrahim's Senate confirmation, a Justice Department assistant attorney general said that all investigations in the antitrust division are initiated and conducted in a "fair, professional and impartial manner." Until now, a pro-business administration had been viewed as favorable to the M&A scene, especially compared with an aggressive antitrust effort at the end of the Obama administration that resulted in the unwinding of several deals, including proposed tie-ups of Cigna-Anthem and Aetna-Humana, both shot down by a court earlier this year. "A fair amount of mergers will go through," said George Hay, an antitrust expert who teaches at Cornell Law School. "I don't think we're seeing a rejuvenated antitrust effort. This is a merger that would have been looked at seriously by any administration." Whether it puts a temporary chill on the deal market remains to be seen. Globally, $3.1 trillion worth of deals have been announced in 2017, with $1.2 trillion in the U.S., according to Dealogic. That is the lowest in dollar amount since 2013, though the number of deals has been relatively consistent. Deals in the U.S. media sector in particular total $32 billion so far this year, the lowest in dollar terms since 2011. There are 99 deals pending at the moment, according to Dealogic. Four of the 10 largest, including AT&T-Time Warner, were announced in 2016. Four other deals out of the top 10 have been announced since September, including Broadcom's massive $105 billion deal for Qualcomm. And there are other deals that have been discussed but not formally announced, including a possible tie-up of pharmacy giant CVS Health with insurance giant Aetna and a sale of 21st Century Fox's movie and television production divisions to either Comcast or Disney. [Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.] The Justice Department argues that the AT&T-Time Warner combination would kill competition, raise prices for consumers and stifle innovation. But it has a tough fight ahead, lawyers said, and it faces an opponent in AT&T with deep pockets to litigate the case. Robert McDowell, a former commissioner of the Federal Communications Commission under the George W. Bush and Obama administrations, said on CNBC Tuesday that AT&T had the law on its side. "It's a weak case," he said. "Get the popcorn."
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