U.S. Judge Approves AT&T's $85 Billion Merger With Time Warner

Jun 12, 2018
Originally published on June 12, 2018 8:01 pm

Updated at 6:02 p.m. ET

A federal judge on Tuesday gave his blessing to telecom giant AT&T's drive to take over the Time Warner media conglomerate. U.S. District Court Judge Richard Leon rejected arguments by Justice Department lawyers that the combined company would be too large and too powerful and that the $85 billion deal would harm competition and hurt consumers.

Time Warner owns CNN, HBO, Warner Bros. Entertainment and a passel of cable channels including TNT, TBS and the Cartoon Network.

In seeking to unify, the two companies argued that a new crop of competitors cast an ominous shadow over their businesses: Netflix, Amazon and Apple in content and distribution; Google and Facebook in advertising.

Leon, based in Washington, D.C., said the evidence and testimony provided by the government were faulty and that it never proved the merged entity would have increased leverage over its competitors.

"Ultimately, I conclude that the Government has failed to meet its burden to establish that the proposed transaction is likely to lessen competition substantially," the judge wrote.

Assistant Attorney General Makan Delrahim said the government was disappointed in Leon's ruling. "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," Delrahim added in a statement.

In its own statement, AT&T said, "We look forward to closing the merger on or before June 20 so we can begin to give consumers video entertainment that is more affordable, mobile, and innovative."

In his decision, Leon weighed in on a case that carried political overtones, scrambled typical ideological alignments and triggered close attention from corporate executives beyond media.

On the campaign trail in October 2016, then-candidate Donald Trump spoke in Gettysburg, Pa. He noted that Time Warner owned CNN, and then declared his opposition to the $85 billion proposed sale. It is, he said then, "a deal we will not approve in my administration because it's too much concentration of power in hands of too few."

Trump's call holds a populist appeal and won some support across the ideological divide. As Gigi Sohn, a former top aide to the Federal Communications Commission chairman under President Obama, put it during the trial, "If we return to a place where ... there's a presumption that big is bad — bad for democracy, bad for consumers — I think that's a good place for antitrust law and antitrust enforcement to be." Delrahim, Trump's appointment as the antitrust chief at the Justice Department, is widely well-regarded.

Yet Trump's antipathy for CNN is so strong and well-known that it colored public perception of the case. In those remarks at Gettysburg, Trump preceded his declaration about corporate ownership with a dig at the "corruption" of what he called "the dishonest mainstream media."

Trump's frequent attacks on CNN led to much speculation, including from AT&T Chairman and CEO Randall Stephenson, that the president's opposition stemmed from anger over the network's coverage rather than concern over greater corporate consolidation. 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.

Even so, the case brought last year by the antitrust lawyers at Trump's Justice Department to block the AT&T and Time Warner marriage is an outlier.

AT&T and Time Warner are not competitors; theirs would be a "vertical integration" of complementary companies: Time Warner makes the TV shows (and movies and news programming and so forth), while AT&T offers the satellite and cable TV services and mobile phone systems on which people consume such content.

The case is commonly characterized as the first major "vertical" deal challenged by federal lawyers in court in more than four decades. Had Leon ruled in favor of the government, the consequences would have reached far beyond media, to tech, health care, finance and other major fields.

Trump's antitrust lawyers and regulators have not pursued a consistent line against increased consolidation; under newly elevated Chairman Ajit Pai, a Republican, the FCC has swept away many regulations limiting how many stations a single company can own.

That has worked to smooth the path of Sinclair Broadcast Group as it seeks to acquire Tribune Media. Sinclair owns more TV stations than any other broadcasting company; Tribune would give it several dozen more. While federal regulators did require the disposal of some properties to satisfy what they characterized as anti-competitive local market situations, Sinclair appears poised to sell some of them to owners with whom it has strong corporate history and ties.

Similarly, when the Walt Disney Co. announced it would acquire most of 21st Century Fox, Trump called Fox's controlling owner, Rupert Murdoch, not to bemoan but to congratulate him — and reportedly to make sure that Murdoch wasn't selling Fox News. (He's not.) Comcast is circling Fox as well, making it clear it plans to disrupt the Disney-Fox union, but did not want to make a formal offer until after Leon's ruling.

Trump has suggested he might want to reopen a review of an earlier deal that has many parallels to the AT&T takeover of Time Warner: Comcast's takeover of NBC Universal. Such suggestions have been accompanied by frequent denunciations of MSNBC and NBC journalists — who work within the Comcast empire.

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ARI SHAPIRO, HOST:

A federal judge handed AT&T a huge victory today. Judge Richard Leon approved an $85 billion bid to take over the Time Warner media conglomerate. Justice Department lawyers had argued that the combined company would be too big, that it would hurt competition and lead to higher prices for consumers. The judge rejected those arguments, writing that the government had failed to meet its burden of proof. Joining us now is NPR's David Folkenflik, who's been following the case. Hi, David.

DAVID FOLKENFLIK, BYLINE: Hey, Ari.

SHAPIRO: So is this just a complete win for the company? It sounds like they got pretty much exactly what they wanted.

FOLKENFLIK: I mean, if you read the decision, if you see what the judge had to say - that's Richard Leon - AT&T drew a full house straight from the deck. He not only rejected the government's contention that consumers would be significantly adversely affected, he put no limitations or restrictions on the proposed merger - takeover of Time Warner and, in fact, advised the government not to appeal. He said it would be unfair given the economic cost that would - the hundreds of millions of dollars that having to push past the June 21 deadline would cost the companies.

SHAPIRO: Advise the government not to appeal - so this case is pretty much over and the merger is going forward.

FOLKENFLIK: Well, it appears as though lawyers at the Justice Department's antitrust division are reviewing their options in the words of the antitrust chief. But he's basically said he would not stave his decision to allow the department extra time to appeal, although he cautioned that he was not erasing their ability to do so.

SHAPIRO: And I understand the judge was especially hard on the government's key witness. Tell us about that.

FOLKENFLIK: Brutal. He said that there was faulty reasoning, faulty evidence provided by the government's key expert, that there was no proof in harm to consumers. I mean, that's - you know, we talk about what the gains and drawbacks are for various corporate players in these things but ultimately, you know, supposedly these decisions are supposed to be not only thought about in terms of the competition that might emerge from this or be dampened by this but by how consumers will be affected. The marginal financial cost that was cited by the government was pretty modest, and even that doesn't seem to have been taken all that seriously by the judge.

SHAPIRO: So what does this really huge merger mean for the media landscape and for other prospective mergers?

FOLKENFLIK: Well, right - and they're a two-fold thing. One of which is there's not only a sigh of relief but a rush of adrenaline, first for AT&T and for Time Warner. This deal will be a huge coup for the head of AT&T. It will be a huge sigh of relief for Jeff Bewkes, who's been figuring out how to deal with a reconstructed Hollywood. Obviously, Time Warner owns not just CNN but HBO, Warner Brothers, a bunch of cable channels including TNT and TBS, right? And they're looking over their shoulders at the behemoth of Netflix, at Amazon and soon at Apple, streaming services that can bypass conventional TV and film studios businesses. And they're saying we have to figure out a way to not only have the content but have the funnels and the pipelines of delivery - AT&T, of course, one the largest telecom providers in the country and broadband providers in the country.

This is going to open up folks making deals. Disney is already trying to take over most of 21st Century Fox's entertainment properties from Rupert Murdoch. It now appears that Comcast, which owns NBC Universal, wants to make a greater bid to snatch it out from Disney. And there are a lot of other companies in other fields. Think of Sprint and T-Mobile, which want to merge, which are direct competitors who say, you know what? If this is getting struck down by the government, we stand a much stronger chance - excuse me - by the courts, we stand a much stronger chance of being able to get our kind of mergers through as well.

SHAPIRO: This proposed merger was also unusual in that President Trump weighed in and said he thought it would put too much power in the hands of too few. Obviously, the judge didn't find that argument compelling either.

FOLKENFLIK: Well - and this has been looming over the case, even though the judge essentially banished and banned all talk of the president's remarks. The president, you know, had said exactly what you said, striking a populist tone, in some ways getting the support of a lot of liberals and Democrats who think there's been too much corporate consolidation but also seemingly in the same breath invoking his disdain for CNN, you know, his slapping the label of false - fake news on that cable channel and using this as a cudgel at least rhetorically against its corporate chiefs. The antitrust lawyers went out after him, but they lost. And, you know, the president has been defeated on this.

SHAPIRO: NPR's David Folkenflik, thank you.

FOLKENFLIK: You bet. Transcript provided by NPR, Copyright NPR.