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Judge Approves AT&T Buyout of Time Warner, Condition-Free

Approving the $85 billion merger of AT&T and Time Warner, a federal judge found Tuesday that the government failed to show the deal would raise prices for consumers and harm competition.

WASHINGTON (CN) - Approving the $85 billion merger of AT&T and Time Warner, a federal judge found Tuesday that the government failed to show the deal would raise prices for consumers and harm competition.

Opting not to impose any restrictions after a six-week trial, U.S. Judge Richard Leon encouraged the government to move on.

Litigation already delayed the merger 18 months, and any attempt to obtain a stay now would be a "manifestly unjust outcome," Leon added. Shortly after delivering his ruling from the bench, Leon memorialized his findings in a 172-page opinion.

Daniel Petrocelli, an attorney with O'Melveny & Meyers who represented AT&T at trial, called the ruling hard earned as well.

"We're disappointed that it took 18 months to get here but we are relieved it's finally behind us,” Petrocelli said outside the courthouse. “We look forward to closing this transaction in the coming days."

The deal is expected to close no later than June 20. “As the evidence at the trial showed, this will only serve to benefit consumers,” Petrocelli enthused.

Assistant Attorney General Makan Delrahim noted in a statement this afternoon that the government is considering its next steps.

‘We are disappointed with the court’s decision today,” Delrahim said. “We continue to believe that the pay-TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner.”

The case had been one of the highest-profile vertical-merger cases litigated by the Department of Justice in decades.  Antitrust actions against vertical transactions, where the merging companies are in the same industry but don’t produce competing products, are rare. The government more commonly challenges horizontal mergers of competing companies it thinks will reduce competition.

Petrocelli emphasized that AT&T will not divest any assets before completing the transaction. "The government sought to block the merger in its entirety and that request was denied in its entirety," the attorney said.

Telecom giant AT&T, which became the largest pay-TV provider in the country after it acquired DirecTV in 2014, decided in 2016 it wanted to own content too and agreed that October to buy Time Warner. Time Warner has studios, produces original content, and owns HBO, Warner Brothers and Turner Broadcasting System Inc., which in turn houses CNN, TNT and TBS.

Faced with a complaint from the Department of Justice in 2017, AT&T and Time Warner insisted that their merger is necessary for both companies to keep up with a rapidly evolving entertainment industry that would otherwise leave them behind.

The government had argued that under AT&T’s umbrella the merger would embolden Turner to impose higher prices on DirectTV’s competitors - like Dish Network and Charter Communications - by threatening to withhold its most popular networks, which AT&T rivals say are “must haves” for their subscribers.

Leon nevertheless rejected each of the government’s three theories of the case, noting first that the possibility of increased leverage lacked precedent.

Carl Shapiro, an economist who testified as the government’s key witness, warned that a Turner blackout would draw customers to AT&T’s DirecTV, but Leon said there has never been a long-term Turner blackout.

He said Shapiro's model failed to consider real-world conditions or pricing data.

For AT&T attorney Petrocelli, the takeaway was simple: “The reality is after a massive investigation that spanned over a year, after an intensive pretrial discovery process and after a grueling six-week trial, the government could present no credible proof that supported any of its theories."

Leon also said the government failed to show a likelihood of harm to online video streamers that offer skinny bundles, like Sling TV.

As for the government's argument that the merged company would prevent rivals from using HBO as a promotional tool, Leon said HBO's business model does not operate that way, and there is no evidence to suggest that HBO would abandon said model.

On the witness stand, Time Warner CEO Jeff Bewkes balked at the government's assertion that the merger would drive up prices for consumers by hundreds of millions annually.

Bewkes said the transaction would instead enable the companies to survive the tumultuous shift away from traditional TV advertising to targeted digital advertising, which allows companies to tailor advertisements to the most receptive audiences.

While Time Warner wants access to the data of AT&T’s more than 150 million subscribers to boost those efforts, AT&T says owning Time Warner’s content will allow it to compete with online streaming services like Netflix and Amazon, which are siphoning off traditional cable TV subscribers.

On the witness stand, AT&T CEO Randall Stephenson said he also hopes to build a digital-advertising component capable of competing with Facebook and Google, and said he plans to introduce AT&T Watch, a new TV-streaming service that costs $15 a month.

As to what Tuesday’s ruling means for other vertical mergers, AT&T attorney Petrocelli emphasized outside the courthouse that "each and every one of these transactions stands on its own.”

"The court's summary made clear that the decision was grounded firmly in the facts and evidence that were presented at trial,” Petrocelli added.

Categories / Business, Trials

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