After much hoopla, the verdict is finally out and AT&T (T) and Time Warner (TWX) have won their battle. Judge Richard Leon approved the $85 billion merger between AT&T and Time Warner without attaching any conditions. The deal is expected to close by June 20. Recall that June 21 is the deadline for the merger completion, and failure in meeting it gives Time Warner the option to walk out.
The DOJ expressed its disappointment with the decision and said it would review the court’s opinion and consider its next steps. The DOJ believes the merger will hurt competition and innovation in the pay-TV market. However, the chances for the decision being overturned on appeal are low and the judge advised the DOJ against seeking a stay on the merger.
Shares of Time Warner rose around 5% during aftermarket hours, while AT&T stock fell around 2%. The shares of 21st Century Fox (FOX), which is being pursued by both Disney (DIS) and Comcast (CMCSA), also rose about 5%. Comcast on the other hand fell about 4%. Other media companies like CBS Corp (CBS) and Viacom (VIA) also saw increases in their stock by more than 2% and 3% respectively.
The passing of this merger without any conditions opens up a whole new set of possibilities in the future in terms of deals across sectors
This decision is expected to bring about a huge wave of change in the corporate world. As discussed previously, there will be a spate of mergers across the media, telecom and tech industries. Comcast can now be expected to pursue Fox full-on. In fact, this trend could extend to other industries too, including healthcare. Another example of an upcoming vertical merger is between CVS Health Corp (CVS) and Aetna (AET).
Judge Leon concluded that the DOJ did not sufficiently prove that the merger was harmful to competition. He added that in order to keep up with competition from the likes of Amazon and Netflix and to deal with the cord-cutting trend, it was beneficial for AT&T and Time Warner to team up.
The passing of this merger without any conditions opens up a whole new set of possibilities in the future in terms of deals across sectors. Firstly, the entity that would be created by the joining of the telecom and media leaders would be colossal. AT&T is the topmost pay-TV services provider and the second biggest wireless carrier while Time Warner owns some of the best content providers like HBO. AT&T will get fresh revenue streams and more distribution from this deal.
Second, now that net neutrality is out, the power that this giant will wield is something to watch out for. The combined entity with its access to content and distribution can write a whole set of new rules with regards to content access and pricing which could affect customers and competitors. The DOJ should have perhaps pursued the argument for some form of stipulation when they filed the case. The failure to do so has lent them a blow.
There are some who believe the Trump administration had a personal dislike for this deal due to CNN and that was the reason the DOJ took aim at a vertical merger in the first place, something that has not been done before. Whether this is true or not is not clear but the attempt to block it has now fallen through.
All said and done, there is one thing perhaps everybody agrees upon and that is the corporate world can prepare itself for several interesting changes.