No doubt you’ve already heard about the remarkable turn of events in the saga of AT&T’s acquisition of Time Warner. As reported by multiple news outlets yesterday, the Justice Department’s Antitrust division is apparently telling AT&T it would have to commit to either divesting Turner (including CNN) or DirecTV in order to gain regulatory approval for the deal. Both are totally unpalatable to AT&T.
All of this puts Makan Delrahim, the recently confirmed head of the Antitrust division in the hot seat. Assuming he decides to block the deal and AT&T then sues the government, it will fall to Delrahim to make the government’s case that absent any divestitures, the deal would be anti-competitive. The bar is even higher for Delrahim because when he was a professor at Pepperdine, he said in a telephone interview with Canada’s BNN that he did not see the deal as a “major antitrust problem.” He explained that any Antitrust objection must be based on a belief that the deal would “substantially lessen competition” by “very defined legal and econometric standards” and that the burden of proof is on the government to prove this in federal court.
So now Delrahim has to explain what he’s learned since being on the job that caused him to change his mind and object. His challenge is magnified by 2 other factors: first, that as a “vertical merger” between companies in different industries, precedent heavily favors approval and second, because President Trump has spoken out against the deal and relentlessly criticized CNN as “fake news,” an impression has been created that the objection is politically motivated. Both are serious considerations that any court would no doubt examine thoroughly.
VideoNuze readers will remember that I have not been a fan of the AT&T - Time Warner deal from the start. The stated benefits of the deal were extremely vague and the hoped-for synergies harkened back to an earlier time of closed networks when there was real value to be gained from having content and distribution under the same roof. So while there’s an argument to be made for AT&T simply diversifying its revenue streams by acquiring Time Warner, the steep price it’s paying, coupled with the pressure from accelerated cord-cutting, suggests the financial outcome will likely be underwhelming.
Still, the government won’t be pointing to lack of strategic rationale for the deal as its basis for objecting. In fact, it needs to prove the opposite, that somehow the deal will provide the combined entity with too much power. Delrahim is going to need some really creative economists to persuasively make that case.
Trump’s alleged role in blocking the deal is the big wildcard. Connecting the dots on the surface is tempting, but absent any tangible proof, it’s likely to be just background noise. Trump may hate CNN down to his bones, but if there’s no evidence that he (or one of his subordinates) influenced Delrahim’s objection, then it’s likely not going to be relevant in any litigation.
So, over a year since announcing the deal, things have moved into uncharted territory. Will the Antitrust division formally object to the deal? Will AT&T then sue or will it fold and walk away? How will Delrahim make his case? What impact will this deal’s uncertainty have on other potential media deals? And how will all of this ultimately turn out?