Why the AT&T-Time Warner Case Was So Closely Watched

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[Read More: Deal makers braced for the ATT-Time Warner ruling.]

What was the judge’s decision?

The takeover can proceed without any conditions, Richard J. Leon, a United States District Court judge, ruled. ATT and Time Warner can now push on with the deal, which they aim to close later this month.

[Read the full ruling (PDF).]

The decision is expected to be taken as a green light for more takeovers. For example, Comcast is expected to make a bid for most of 21st Century Fox’s television assets — setting up a bidding war against the Walt Disney Company.

It’s possible that the Justice Department will appeal the ruling, though, so things may not end here.

What was the reaction?

ATT said in a statement that it hoped to close the merger “on or before June 20 so we can begin to give consumers video entertainment that is more affordable, mobile, and innovative.”

The Justice Department said it would consider its options.

Shares of other companies involved in mergers rose after the ruling. T-Mobile which is seeking to merge with rival mobile-service provider Sprint rose about 1.5 percent in after-hours trading. Sprint gained 1 percent.

CVS and Aetna also rose, while Express Scripts, which is being acquired by insurer Cigna, added about 5 percent. Cigna also rose.

Photo

The Dallas headquarter of ATT, whose proposed merger with Time Warner was challenged in court by the Trump administration. A ruling is expected Tuesday.

Credit
Dylan Hollingsworth for The New York Times

Why was this case so closely watched?

A key argument against the government’s case was that the deal is a so-called vertical merger, which means that the two companies do not produce competing products: One makes media content, and the other distributes it. Some big takeovers lately have had similar profiles — the purchase of the insurer Aetna by the drugstore chain CVS, and Amazon’s purchase of Whole Foods — and they typically make it past regulators.

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In the past, regulators have instead focused on keeping one company, or a small group of companies, from owning too much of any one specific industry. It comes up when companies buy their competitors — what’s known as horizontal integration.

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For example, in 2016, a federal judge blocked the merger of Staples and Office Depot after the Federal Trade Commission argued that the combination would leave Americans with only one dominant retailer focused on pens, paper clips and Post-it notes.

What makes the ATT decision noteworthy is that the deal was challenged even though it doesn’t share all the characteristics of horizontal integration.

“Vertical mergers do not fit the traditional horizontal-merger analytical framework used by the U.S. regulatory authorities,” R. Mark McCareins, a professor at the Kellogg School of Management at Northwestern University, wrote in an online discussion about vertical mergers. It means the trade commission and the Department of Justice “are faced with pounding a square peg into a round hole.”

[Read more: The Time Warner case was not ATT’s first tangle with U.S. antitrust law.]

How else could Judge Leon have ruled?

Judge Leon could have blocked the deal.

Doing so might have encouraged the Justice Department to act more aggressively when looking at deals in the future, and also could have prompted a rethink by companies with similar deals in the works.

He could have approved it but attached conditions.

The aim of the conditions could broadly have been to keep ATT from using its control of providers like HBO or CNN as a weapon to increase costs for its rivals. The Justice Department argued that ATT could charge rivals a high price for, say, HBO to make ATT’s own product more competitive.

One way to address this could have been to appoint a third party to oversee disagreements between ATT and the cable companies that want to license Time Warner content. The government didn’t like that approach.

Another option was to demand that ATT and Time Warner sell off some plum assets. ATT and Time Warner didn’t like this approach, so was expected to appeal any such decision.

Didn’t this get political at one point?

Yup. Time Warner owns CNN, which President Trump has publicly and repeatedly attacked as fake news.

“ATT is buying Time Warner, and thus CNN,” he said at a campaign rally when the deal was announced. He said it was “a deal we will not approve in my administration.”

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The government had said that Mr. Trump did not communicate with antitrust officials on the deal and that their decision to oppose the merger had not been ordered by the White House. During the trial, Judge Leon rejected many of ATT’s efforts to introduce evidence about political interference into the case.

Correction: June 12, 2018

An earlier version of this article misstated the structure of a merger between T-Mobile and Sprint. T-Mobile will acquire its rival mobile-service provider Sprint, not the other way around.

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