AT&T and Time Warner Merger Case: What You Need to Know

Representatives from AT&T (T) and Time Warner are in Washington this week testifying before a three-judge panel at the D.C. Court of Appeals. The Justice Department, which sued both companies in November to block the deal, argued that the merger would lead to “higher prices and less innovation for millions of Americans.” 

But wait. Weren't AT&T and Time Warner just in court? And didn't that merger already happen? In this article, we break down everything you need to know about the AT&T and Time Warner merger case.

Why Are AT&T and Time Warner in Court?

AT&T first announced plans to merge with entertainment company Time Warner back in 2016. The $85 billion deal solicited strong words from then-presidential candidate Donald Trump, who claimed the merger would put "too much concentration of power in the hands of too few."

After Donald Trump was elected U.S. President, his Justice Department filed a lawsuit against AT&T and Time Warner to block the proposed merger. That lawsuit landed in the courtroom of Judge Richard Leon, a George W. Bush appointee, in a U.S. District Court in Washington, D.C. After a six-week trial, Judge Leon sided with AT&T and Time Warner on Jun. 12, 2018, giving the companies the green light to complete their merger. Three days later on Jun. 15, 2018, AT&T announced that it had acquired Time Warner.

For a brief two months, the legal dust seemed to have settled — that is, until the DOJ decided to appeal to the U.S. District Court's decision on Aug. 6, 2018. Now, representatives from AT&T, Time Warner, and the DOJ are making their cases before a three-panel judge in the Washington D.C. Court of Appeals. To be clear, the merger has already happened. That means the DOJ is effectively asking the D.C. Court of Appeals to "unmerge" the two companies seven months after they combined operations.

The March lawsuit and December appeal brought forward by the DOJ mark the first time in several decades that the U.S. government has intervened in a merger. But a successful merger would mean that one of the world's largest wireless and telecommunications companies would combine with one of the world's largest media and entertainment companies.

Why Are AT&T and Time Warner Teaming Up?

Time Warner is one of the largest media and entertainment companies in the world, controlling a number of popular brands including TNT, TBS, CNN, and HBO, as well as the Warner Bros. line of enterprises.

If AT&T's acquisition of Time Warner was to go through, the telecommunications titan would be able to market Time Warner's massive pool of content to other cable companies and consumers. It would also aim to collect usage data regarding viewership of the content, with the ultimate goal being able to construct a digital advertising arm to compete with major rivals like Facebook (FB) and Google (GOOG).

Because of the size of the two companies and their broad reach across many different areas of business and culture, the merger would have a profound effect across the U.S. According to a recent report from the Washington Post; detractors argue that it could lead to higher prices and harm competition in the industry.

AT&T could coerce other cable companies to pay more for the rights to carry popular television shows and channels. This would likely mean an increase in cost to the consumer. The Justice Department believes that this process might add $436 million in extra fees to cable subscribers each year.

For its part, AT&T argues that prices for cable services would actually decrease as a result of newly generated economic efficiencies. AT&T claims that even if there were increases for the reasons the Justice Department has argued, those would be capped at 45 cents per month per customer.

Why Does the Department of Justice Care?

Besides the major business implications of the AT&T-Time Warner merger, the antitrust lawsuit will have much broader implications for the world of mergers and acquisitions (M&As) in general. Indeed, the case would be a bellwether for future mergers and acquisition deals.

M&A is a major area, with over $409 billion in deals announced so far in 2018 alone. This is a jump of two-thirds over the same time last year. It's also part of a broader trend: from 2010 to 2016, the number of proposed mergers that were passed along to the federal government for approval climbed by 58%.

Regulators are largely concerned with protecting competition and the consumer when it comes to cases such as these. Although it is a simplistic way of viewing complicated mergers, antitrust regulators tend to consider prices for the consumer as a measure of the health of competition. If a merger causes prices to go up, that could be bad for consumers and may warrant additional regulatory scrutiny.

"You’re in a situation where two entities are bidding for an asset, and this kind of action can obviously influence the outcome of those actions," AT&T chief executive Randall Stephenson said after the DOJ appeal: "But who knows whether that’s behind this.”

Why Does President Trump Care?

From candidate to the president-elect to the president of the U.S., Donald Trump has had no problem sharing his disapproval of cable network CNN. On the campaign trail, President Trump spoke about the merger, saying that "as an example of the power structure I'm fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it's too much concentration of power in the hands of too few."

However, over the past several months, AT&T has worked to woo the Trump administration. The telecommunications company donated $2 million in cash toward the presidential inauguration and Stephenson personally called Trump in January 2018. For his part, Trump has yet to suggest that he supports the merger.

Regarding the DOJ's Jun. 12 decision, Stephenson wouldn't comment on whether the decision was political or not, although he feels as though the law is on his side. If the merger is officially blocked, AT&T would be required to pay Time Warner $500 million in a so-called "reverse break-up fee" — but Time Warner stands to lose more. The company would lose out on an $85 billion acquisition, which would have gone directly to its shareholders and executives.

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