AT&T-Time Warner may have closed their merger in 2Q18, but AT&T can’t integrate the Turner assets until the litigation is concluded or February 28, whichever comes earlier. AT&T agreed to these terms in exchange for forging an immediate closing. The appeals court will probably rule before February 28, but if not, the DOJ may ask AT&T to extend the agreement until a decision is made. If the DOJ loses and seeks Supreme Court review, it cannot force AT&T to continue to hold Turner separate without getting a court order.
Judge Richard Leon’s decision in favor of AT&T will likely be upheld on appeal, based on the questions from a three-judge panel during a December 6 hearing. Two judges appeared openly skeptical of the DOJ’s arguments, asking where the clear errors are in Leon’s ruling, why the DOJ ignored the effect of an arbitration offer AT&T extended to distribution rivals and noting weaknesses in the DOJ’s economic model. The standard for reversal is high because deference must be given to Leon’s fact findings.
The U.S. Court of Appeals for the D.C. Circuit will likely rule on the DOJ’s appeal of its court loss to AT&T before the end of February. While the judges aren’t obligated to rule by then, they are likely well aware of AT&T’s agreement with the DOJ to hold the Turner assets separate until February 28 and will try to be accommodative. Oral arguments took place on December 6. Federal district court judge Richar J. Leon ruled for the companies on June 12.
The Department of Justice filed a lawsuit in 4Q17 in a Washington federal court seeking to block AT&T’s purchase of Time Warner. Ownership of Time Warner content by AT&T is alleged to provide the merged company the ability and incentive to harm rival video distributors and raise prices. The companies prevailed on June 12 and the deal closed two days later with the agreement that Turner would be held separate. The DOJ appealed the decision on July 12 and oral arguments were held December 6.
If the DOJ wins its appeal, AT&T could still ultimately prevail. A DOJ win would likely result in the case being sent back to the trial court for a finding that the requisite showing of harm was made. Yet the trial court then assess a broader range of efficiencies than it did the first time and conclude that the benefits outweigh the harm. While there is little precedent for an M&A court win on this basis, most cases have involved horizontal M&A. And vertical deals tend to yield greater efficiencies.
