AT&T PUR­CHASE OF TIME WARNER

CRE­AT­ING EN­TER­TAIN­MENT COLOS­SUS

The Gulf Today - Business - - SPECIAL REPORT -

Afed­eral judge Tues­day cleared the way for AT&T Inc.’s $85.4-bil­lion pur­chase of Time Warner Inc., cre­at­ing an en­ter­tain­ment colos­sus that prom­ises to re­shape the me­dia busi­ness.

US District Judge Richard Leon’s rul­ing in the big­gest an­titrust case of the cen­tury is ex­pected to pave the way for more megamerg­ers and was a sting­ing de­feat for the Trump ad­min­is­tra­tion.

The Jus­tice Depart­ment sued to block the merger, ar­gu­ing it would harm com­pe­ti­tion in the pay-tv mar­ket and raise con­sumer prices. But speak­ing be­fore a packed court­room, Leon made it clear that the govern­ment had failed to prove any of its ar­gu­ments against the merger dur­ing the six-week trial.

“The par­ties have waged an epic bat­tle,” Leon said. “The court has spo­ken.”

His de­ci­sion means the deal, an­nounced in Oc­to­ber 2016, can close by next week, cre­at­ing a giant new player in en­ter­tain­ment. The new AT&T will com­bine a large pro­gram­ming uni­verse _ in­clud­ing block­buster movie fran­chises, such as Won­der Woman and Bat­man, hit TV shows, such as HBO’S “Game of Thrones” and “West­world,” and live news and sports pro­gram­ming _ with a na­tion­wide net­work of wire­less and satel­lite ser­vices to bet­ter com­pete with Net­flix and other tech­nol­ogy heavy­weights.

The rul­ing also is ex­pected to ac­cel­er­ate a wave of me­dia mergers. A de­ci­sion against AT&T would have put a damper on other po­ten­tial com­bi­na­tions, said Mark Os­trau, an at­tor­ney and mergers and ac­qui­si­tions ex­pert at Moun­tain View, Calif., law firm Fen­wick & West.

Other com­pa­nies pur­su­ing sim­i­lar deals can breathe a lit­tle eas­ier, he said, “be­cause it may cause the Depart­ment of Jus­tice to think twice about pur­su­ing a case.”

Com­cast Corp., for ex­am­ple, prob­a­bly will pro­ceed with plans to try to out­bid Dis­ney for the bulk of 21st Cen­tury Fox’s as­sets, he said. The law­suit against AT&T was un­usual be­cause the fed­eral govern­ment rarely blocks mergers in­volv­ing com­pa­nies that don’t di­rectly com­pete.

Pol­i­tics also cast a long shadow over the lit­i­ga­tion. The fric­tion be­tween Pres­i­dent Trump and Time Warner’s CNN led to spec­u­la­tion that the govern­ment’s op­po­si­tion was fu­eled by his an­i­mus to­ward the ca­ble news net­work. Trump had said dur­ing the 2016 cam­paign that the merger would con­cen­trate too much me­dia power in one com­pany.

AT&T even hired Trump’s for­mer “fixer” Michael Co­hen shortly af­ter the 2017 in­au­gu­ra­tion and paid him $600,000 for in­sight into Trump’s think­ing, a de­ci­sion that AT&T Chief Ex­ec­u­tive Ran­dall Stephen­son last month called a “big mis­take.” AT&T’S re­ten­tion of Co­hen was made pub­lic in May amid the le­gal skir­mish over the pres­i­dent’s al­leged af­fair with Stormy Daniels more than a decade ago.

But Leon de­nied AT&T’S re­quest to try to un­cover any ev­i­dence that the White House might have in­flu­enced the de­ci­sion.

The judge strongly urged the Jus­tice Depart­ment not to seek an emer­gency stay of his rul­ing pend­ing ap­peal, warn­ing it could cause the merger to col­lapse be­cause of a June 21 dead­line the com­pa­nies set to close.

Daniel Petro­celli, the lead at­tor­ney for AT&T and Time Warner, told re­porters Leon rec­og­nized that the com­pa­nies have been sub­jected to an “in­ter­minable de­lay” in clos­ing the deal and that “it’s un­fair to the de­fen­dants, to the hun­dreds of thou­sands of em­ploy­ees of their com­pa­nies, whose lives have been hang­ing in the bal­ance, and to all the share­hold­ers and all the other con­stituen­cies of these two great com­pa­nies.”

Asked if there was po­lit­i­cal mo­ti­va­tion in the Jus­tice Depart­ment bring­ing the case, Petro­celli noted AT&T had wanted to try to fig­ure that out.

“It was a case that never should have been brought,” he said.

The sweep­ing re­pu­di­a­tion of the govern­ment’s case was a stun­ning de­feat for the Jus­tice Depart­ment. Af­ter the hear­ing, As­sis­tant Atty. Gen. Makan Del­rahim said he was “ob­vi­ously dis­ap­pointed” by the de­ci­sion and that he and his team would re­view the judge’s 170page de­ci­sion.

“I’ve taken an oath to up­hold com­pe­ti­tion and we’re go­ing to take a re­view of the opin­ion and take the next steps as nec­es­sary,” Del­rahim said as he left the fed­eral court­house near Capi­tol Hill.

Wall Street wel­comed the de­ci­sion, which boosted the shares of other me­dia com­pa­nies. Time Warner Inc. closed at $96.22 and jumped 5 per cent in af­ter-hours trad­ing, although shares in AT&T, which closed at $34.35 Tues­day, dropped 1.5 per cent af­ter mar­kets closed.

AT&T, al­ready a telecom­mu­ni­ca­tions giant with more than 100 mil­lion wire­less sub­scribers and 25 mil­lion pay TV homes, will ac­quire Time Warner’s valu­able en­ter­tain­ment as­sets, in­clud­ing HBO, CNN, Car­toon Net­work, TBS, TNT, Turner Clas­sic Movies and Warner Bros., Hol­ly­wood’s largest TV and movie stu­dio.

Dur­ing the trial, Jus­tice Depart­ment lawyers ar­gued that AT&T wanted to “weaponize” Time Warner’s con­tent to give it lever­age to raise cus­tomer prices.

The re­sult, the govern­ment warned, would be sig­nif­i­cant harm to com­pe­ti­tion _ par­tic­u­larly new online pay-tv providers _ and a pow­er­ful new gate­keeper that would lead to an in­crease of more than $400 mil­lion a year in prices for all Amer­i­cans.

But AT&T and Time Warner Inc.’s le­gal team, led by Petro­celli, pur­sued an ag­gres­sive de­fense that in­cluded tes­ti­mony from Stephen­son and Time Warner CEO Jef­frey Bewkes.

Bewkes and Stephen­son had ar­gued that the merger was needed so the com­pa­nies could bet­ter bat­tle online com­peti­tors such as Net­flix, Ama­zon, Face­book and Google. The com­bi­na­tion of Time Warner’s “pre­mium con­tent” with AT&T’S vast sub­scriber net­work would al­low the new com­pany to en­gage con­sumers and tar­get ad­ver­tis­ing tai­lored to their habits. Prices would go down, not up, AT&T ex­ec­u­tives said.

The Jus­tice Depart­ment sought to use three ar­gu­ments to prove that the deal would sub­stan­tially lessen com­pe­ti­tion. But on each one, Leon said the govern­ment failed to meet its bur­den of proof un­der an­titrust law.

The Jus­tice Depart­ment’s first ar­gu­ment was that ac­quir­ing Time Warner con­tent would give AT&T in­creased lever­age in ne­go­ti­a­tions with dis­trib­u­tors to with­hold con­tent be­cause AT&T’S own pay-tv ser­vices _ Directv and U-verse _ would pick up some of the cus­tomers lost from ri­vals dur­ing a pro­gram­ming black­out.

Leon noted there had never been a long-term black­out of Turner net­work con­tent. Tes­ti­mony from ri­val dis­trib­u­tors about AT&T lever­age “was too spec­u­la­tive in na­ture” and “con­tained ob­vi­ous com­pet­i­tive bias,” he said.

The govern­ment’s sec­ond ar­gu­ment _ that AT&T alone or in con­junc­tion with Com­cast Corp. would try to slow the growth of online ri­vals by with­hold­ing con­tent from those ser­vices _ also failed to pass muster. Leon deemed the the­ory un­likely.

And Leon dis­missed the third govern­ment ar­gu­ment, that AT&T would deny com­peti­tors the abil­ity to use HBO in cus­tomer pro­mo­tions, as a “gos­samer-thin claim” based on “bare con­jec­ture.”

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