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AT&T won the court approval on Tuesday to buy Time Warner for $85 billion, rebuffing an attempt by US President Donald Trump’s administration to block the deal and likely setting off a wave of corporate mergers.
The deal, which could close next week, is seen as a turning point for a media industry that has been upended by companies like Netflix and Alphabet’s Google which produce content and sell it online directly to consumers, without requiring a pricey cable subscription. Cable, satellite and wireless carriers all see buying content companies as a way to add revenue, reports Reuters.
Trump, a frequent detractor of Time Warner’s CNN and its coverage, denounced the deal when it was announced in October 2016. US District Judge Richard Leon found little to support the government’s arguments that the deal would harm consumers, calling one position “gossamer thin” and another “poppycock.”
The ruling could also prompt a cascade of pay TV companies buying television and movie makers, with Comcast Corp’s bid for some Twenty-First Century Fox assets potentially the first out of the gate.
The merger, including debt, would be the fourth largest deal ever attempted in the global telecom, media and entertainment space, according to Thomson Reuters data. It would also be the 12th largest deal in any sector, the data showed.
In a scathing opinion, judge Leon concluded that the government had failed to show competitive harm and urged the US government not to seek a stay of his ruling pending a potential appeal, saying it would be "manifestly unjust" to do so and not likely to succeed.
“That’s a legal shocker,” said J.B. Heaton, an attorney and consultant on litigation and regulatory proceedings. “I think we’ll see now that companies will be much more confident about vertical mergers,” he added, referring to deals where a company merges with a supplier.
Shares of AT&T fell about 1.3 per cent in after-hours trade following the decision, while Time Warner rose more than 5 per cent.
Twenty-First Century Fox jumped 7 per cent in extended trade after the ruling on expectations that Comcast and Walt Disney Co could start a bidding war to acquire its media assets. Comcast and Walt Disney dropped 4.3 per cent and 1.8 per cent, respectively.
Shares of other media and telecom companies also rose, including T-Mobile US Inc, Sprint Corp, CBS Corp, Dish Network Corp, Discovery Inc, and Viacom Inc.
“This will be a blockbuster summer for media mergers,” said Mary Ann Halford, senior adviser to OC&C Strategy Consultants.
Shares of Express Scripts Holding Co, which is set to be bought by Cigna Corp for $52 billion, rose 4.8 per cent, while shares of health insurer Aetna Inc, due to be acquired by CVS Health Corp for $69 billion, rose 3.6 per cent.
Opponents of the AT&T decision also predicted more deals.
“Consumers should fear a cascade of unchecked mergers and acquisitions to further consolidate the telecom industry resulting in less choice, fewer competitors and higher prices,” Senator Richard Blumenthal, a Democrat, said in a statement.
The Justice Department filed a lawsuit to stop the deal in November 2017, saying that AT&T’s ownership of both DirecTV and Time Warner would give AT&T unfair leverage against rival cable providers that relied on Time Warner’s content, such as CNN and HBO’s “Game of Thrones.”