— Johnson Fistel, LLP (@JF_LLP) October 12, 2018
When AT&T bid on Time Warner for $85 billion in October 2016, the putative acquisition would have combined the juggernaut forces of two media heavyweights in an industry being rapidly transformed by new content and distribution drivers.
AT&T touted the merger as one that would create efficiencies and allow the company to reduce consumer prices. But the U.S. Justice Department, in a lawsuit to enjoin the merger initiated last November, argued that it would hurt American consumers by curtailing innovation and ultimately effecting higher monthly bills. In other words, the U.S. Justice Department argued that by reducing the competitive vigor of the market in which AT&T and Time Warner operate by allowing “[t]he merged firm [to] have the incentive and the ability to raise its rivals’ costs and stifle growth of innovative next-generation entrants,” the merger violated U.S. antitrust laws designed to protect consumers from predatory corporate acts designed to achieve monopolies.
But in a landmark ruling in June 2018, U.S. District Court Judge Richard Leon called certain of the government’s arguments “poppycock” and issued an opinion that the deal could go through. In so reasoning, the Court opined that the two companies’ competing visions “couldn’t be more different” and wrote “that the Government has failed to meet its burden to establish that the proposed transaction is likely to lessen competition substantially.”
The green-lighting inspired a flurry of analyst and legal commentary concerning whether judicial approval of the deal would incite an “urge to merge” among other large companies, including Disney—which bid $52 billion for most of 21st Century Fox’s assets last December—and other target media commodities such as Lionsgate, MGM, and Sony Pictures Entertainment.
While the ruling may have signaled a clear path forward for such deals, the federal appeals court this month approved the government’s request for an expedited schedule for an appeal, with briefing due by mid-October and oral arguments “as soon as practicable.” Notwithstanding the accelerated litigation schedule, AT&T and Time Warner have already taken significant steps to integrate the two businesses and AT&T Chief Executive Randall Stephenson has publicly averred that “[T]he likelihood of this thing being reversed or overturned is really remote.”
Whether or not the deal withstands judicial scrutiny on appeal remains to be seen. Critically, if the AT&T-Time Warner deal ultimately bears the imprimatur of the court, it could very well precipitate a colossal spike in media mergers, acquisition activity, and consolidation.