WASHINGTON (CN) – Nearly two years after deciding to join forces, AT&T and Time Warner will find out Tuesday if they can finally close their $85 billion deal.
U.S. District Judge Richard Leon could either approve or deny the merger outright, but gave few hints about how he would rule in the case as the six-week trial stretched from late March through early May.
Another option for Leon, who was appointed to the bench by President George W. Bush, is to condition approval of the merger on some type of remedy, such as ordering changes to AT&T’s offer to engage in “baseball-style” arbitration for seven years if pricing disputes arise during carriage negotiations.
One outcome that former antitrust attorney Joseph Tipograph called unlikely is that Leon will block the merger outright or require divestiture — two results that AT&T and Time Warner both had said would effectively kill the deal.
“I think the likelihood of that outcome is very low,” Tipograph, the D.C. bureau chief for Dealreporter, said in a phone interview. “But I also think it’s low that he allows it to go through unconditionally without any arbitration offer.”
Whereas AT&T would likely appeal a ruling to that effect, Tipograph said the Department of Justice would bring the appeal if Leon approves the merger outright.
“If he dismisses the entire argument the Department of Justice has made, it’s almost as if he’s creating a standard for vertical mergers,” Tipograph said. “And that’s where I think the DOJ would be very quick to appeal.”
The government’s argument over six weeks of trial revolved around the increased leverage the merged company would have during carriage negotiations.
That leverage would allow AT&T to threaten to withhold popular Turner Networks channels, like CNN, TBS and TNT to extract higher prices.
On the high end, economist Carl Shapiro projected for the government that consumers could see a monthly increase on their cable bills of 45 cents as a result. Shapiro, who teaches at the University of California, Berkeley, said on the low end that customers would see a 25-cent increase.
In the case of a Turner blackout, the government also argued that subscribers of AT&T’s competitors would flee and subscribe instead to AT&T’s DirecTV, harming competition.
But during the trial, defense attorneys called into question a $700,000 study commissioned by Charter Communications, which Shapiro had relied upon to determine that Charter could lose 9 percent of its subscribers during a blackout of Turner networks.
An earlier version of the study had indicated that Charter would lose as few as 5 percent of its subscribers during a Turner blackout.
If Leon approves the merger outright, Tipograph said the judge might premise his ruling on the government’s failure to make its case based on the changes that were made to the Charter study.
“You would definitely see an appeal from the Department of Justice,” the lawyer said, noting the prospect of other vertical deals, like the Aetna-CVS merger, where companies in related industries that don’t produce competing products merge.
Another option is for Leon to approve the deal with the arbitration offer and look at it as one big package without getting too deep into the merits of the merger.
“That’s sort of an easy out for him,” Tipograph said, adding that the Department of Justice would likely appeal that outcome as well.
The most likely outcome, he said is that Leon will approve the merger but require AT&T to strengthen its arbitration offer, which could prompt an appeal from both sides.
AT&T argued during trial that the arbitration offer should alleviate the government’s competitive concerns, and said the merger would lower prices for pay-TV subscribers.
AT&T and Time Warner also argued that without the merger they risk being left behind by tech giants like Facebook, Apple and Google, along with video streaming leaders like Netflix and Amazon, which have expanded into content production.
With the timeline to close the deal around the corner on June 21, Tipograph said the parties could agree to extend the deadline in the case of an appeal. But if Leon approves the merger, they can go ahead and consummate the transaction even if the government appeals.
Leon is expected to issue a ruling in the landmark antitrust case from the bench around 4 p.m. Tuesday afternoon.