In a widely watched move that was reported by news organizations across the U.S. Tuesday afternoon, U.S. District Judge Richard León ruled that AT&T may move forward — without any conditions — with its $80 billion-plus merger with Time Warner Inc.
It’s a “historic defeat” for the U.S. Department of Justice, the Wall Street Journal reports. But, will this decision open the floodgates for more media consolidation, with Sinclair Broadcast Group‘s still-to-be-approved merger with Tribune Media the first of a new wave of company combinations? Leading brokers and D.C. communications attorneys are split on the answer.
The AT&T merger with Time Warner had been held up for some 20 months.
With León’s 172-page ruling, it was determined that the combined company would not suppress competition in the pay-TV industry. This was a setback not only to DOJ but to the White House, as President Trump — a critic of CNN — personally suggested that the deal be halted.
The Wall Street Journal declares that the AT&T/Time Warner deal “could set off a round of media mergers.” Talk turned to Comcast‘s desire to pick up the bulk of 21st Century Fox‘s assets. Nowhere in the article was there mention of Sinclair’s held-up acquisition of Tribune Media.
Perhaps there is good reason for this.
Speaking from New York, MVP Capital Managing Director Elliot Evers notes that he and co-Managing Director Bill Fanning are in agreement that the impact on Sinclair/Tribune or other pure-play media deals may not be that significant.
“Even though the DOJ lost, they were pursuing a bit of a hopeless cause—fighting a vertical merger, i.e. a combination of two companies that do not compete directly,” Evers says. “This is something they have not done for decades. Such vertical combinations present a very different scenario from what is being scrutinized in the Sinclair-Tribune deal – and in most pure-play broadcast media transactions. These are typically horizontal mergers, where the parties compete for the same dollars or viewers. A combination would, in the mind of the DOJ, raise anti-competitive issues.”
Thus, he and Fanning believe DOJ will continue to be on the lookout for what they consider excessive consolidation in the media world. “Even though the DOJ got a slap on the wrist, media industry leaders should be cautious in assuming DOJ will bless horizontal combinations,” Evers says.
Larry Patrick, Managing Partner at Patrick Communications, has a different take.
“The approval signals that Justice may approve larger media combinations,” he says. “I believe that this may be good news for Sinclair and other potential mergers in the media space.”
THE LEGAL TAKE FROM D.C.
Francisco Montero, Managing Partner at Fletcher, Heald & Hildreth, has a mindset that is very much in line with that of Evers.
“I wouldn’t immediately assume that the court’s ruling in the AT&T-Time Warner merger necessarily signals the start of a merger approval frenzy,” he notes via e-mail from São Paulo. “Remember that the reason the AT&T deal ended up in court in the first place was because DOJ opposed it, and that was largely because the DOJ saw the potential for a vertical monopoly with content and distribution locked together.”
Deals like Sinclair-Tribune will be scrutinized by DOJ, he says, “for whether they present horizontal concentration of market strength through the aggregation of TV signals and concentrated leverage over advertisers and content producers.”
Moreover, with Sinclair “there are FCC media rules at play, such as the national audience cap,” Montero adds. “Still, I think it’s safe to say that this FCC is more hands-off — although President Trump has expressed skepticism of media concentration. Remember that the Wheeler FCC and Genachowski FCC saw a fair share of mergers.”
Speaking from Fletcher Heald & Hildreth’s Arlington, Va., office, colleague Peter Tannenwald asks one big question with respect to the court’s ruling that paves the way for an AT&T/Time Warner merger: Was the ruling really specific regarding just the lack of probative evidence presented in this case, or was the court saying that the burden of proof generally is high, and you need really strong evidence to win any case?
“If the latter, that means that the threat of antitrust enforcement against future mergers has been reduced,” Tannenwald believes. “There are plenty of other companies interested in merging. So, if the legal threat is reduced, more merger deals are likely to be made. The more specific the ruling was to the AT&T-Time Warner situation, the more you would have to examine the facts relating to any future merger to predict success or failure.”
There’s also another factor at play today, Tannenwald concludes: Justice is up for a battle.
“We also have to see whether DOJ will fight hard, fight just a little, or retreat,” he says. “[U.S. Assistant Attorney General for the Antitrust Division] Makan Delrahim is a smart guy, and he cared about this case; so don’t assume that DOJ is down and out.”
RBR+TVBR, reporting from Washington, D.C. and Miami