M&E firms may consolidate after AT&T ruling

Regulators will still strictly scrutinise similar deals Comcast will be hopeful about Fox

New York/Washington/ Bengaluru, June 13: A federal judge on Tuesday gave a ringing endorsement to AT&T Inc’s planned acquisition of Time Warner Inc without any conditions, opening the door for companies such as Comcast and Verizon Communications to pursue deals to buy creators of media content.

The ruling by Judge Richard Leon of the US District Court for the District of Columbia brings an end to a six-week antitrust trial in which US regulators argued that the $85 billion deal would give AT&T undue leverage against rival cable providers that relied on Time Warner’s content.

The judge’s strong approval, and scathing opinion that urged the government not to seek a stay if they opposed the ruling, will give telecommunications providers the confidence that similar types of acquisitions will also have a shot at clearing regulatory hurdles, and could spur other copycat mergers this year, industry analysts and dealmakers said.

Investors are now also expecting major media consolidation, with 21st Century Fox shares rising more than 6 per cent in after-market trading.

Cable network owner Discovery saw shares increase 3.2 per cent while mobile providers, Sprint and T-Mobile US, which are waiting for a government approval of their own, also saw a bump following the decision.

AT&T said that controlling Time Warner’s cable brands will help it craft new types of content to retain its customers as web-based rivals like Netflix woo audiences away from traditional pay-TV subscriptions.

For cable companies feeling the pain of cord-cutting, similar deals for coveted media brands could help them build out new content offerings and offset expected declines in revenues, analysts and dealmakers told Reuters.

The Justice Department had argued that AT&T’s acquisition of Time Warner would allow it to charge premium prices to rivals who relied on its Turner and HBO channels to woo customers to their cable plans, potentially giving it an unfair advantage in the pay-TV market. Now this will be a less of a concern for companies.

“This decision could serve as a ‘green light’ for other potential M&A, including Comcast’s ongoing pursuit of FOX,” said John Hodulik, an analyst at UBS, in a note.

Regulators will still likely scrutinize similar deals, and there is no guarantee that the district court’s approval of AT&T’s merger with Time Warner means that other major media acquisitions would be approved, several antitrust attorneys told Reuters.

Still, at least one company, Comcast, the largest US cable provider, had been waiting for the court decision before making any large M&A moves in media, sources have said.

Rival cable company Comcast is now likely to go ahead with its planned attempt to woo Fox away from Walt Disney, which said it would acquire most assets of the media company for around $50 billion last year.

“Regardless of what happens on the appeal front, expect Comcast to put forth an all-cash bid in the next day or so at a premium to Disney,” said Mary Ann Halford, senior adviser to OC&C Strategy Consultants.

Comcast is aiming to gain control over Fox assets such as its Twentieth Century Fox Film and TV studios, which includes brands ranging from XMen to The Simpsons, as well many of its cable networks.

The court ruling could also open the door for Verizon, AT&T’S main rival, to bid for a media company, UBS’ Hodulik added.