A historic lawsuit involving AT&T (T) and the U.S. Justice Department went to trial on March 19, 2018.  Nearly three months later on June 12, 2018, Judge Richard Leon ruled in favor of the mobile company. The antitrust lawsuit concerned AT&T's proposed $85 billion acquisition of Time Warner (TWX). With a green light from the court, should the merger proceed as planned, one of the largest wireless and telecommunications companies in the world would combine with one of the largest media and entertainment companies in a so-called vertical merger or one that carries across different lines of business.

The trial marks the first time in several decades that the U.S. government has stepped in during such a merger. The government's opposition to the merger took antitrust analysts by surprise. 

Historical Background

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.

Should AT&T's acquisition of Time Warner 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 to construct a digital advertising arm to compete with major rivals like Facebook (FB) and Google (GOOG). (See more: Holdup of AT&T-TWX Deal a Win for Netflix, Amazon.)

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 report by the Washington Post, detractors argue that it could lead to higher prices and harm to 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.

Implications for M&As

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

If the Justice Department had won, other companies considering this move might rethink their efforts and reconsider whether the government is willing to take a passive view of the process. With AT&T's win regulators might have a more difficult time reining in other vertical mergers they consider anti-competitive.

M&A is a major area, with more than $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, it might be bad for consumers, and thus it warrants additional regulatory scrutiny.

Trump Calls Deal Anti-Competitive

President Trump has had no qualms about revealing his distaste for CNN throughout his tenure. On the campaign trail, he 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 Trump's administration. It donated $2 million in cash toward the presidential inauguration. CEO Randall Stephenson personally called Trump in January 2018. For his part, Trump has yet to suggest that he supports the merger.

Had the merger been blocked, Time Warner stood to lose out on $85 billion, which would have gone to its shareholders and executives. However, AT&T would have been required to pay Time Warner $500 million in a so-called "reverse break-up fee." This constitutes just 0.6% of the original agreement, which is much lower than a standard fee of this type, typically ranging between 3% and 9%. (See also: Break-Up Fees: Failed M&A Can Cost A Lot .)

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