AT&T defeats U.S. in merger fight to buy Time Warner

AT&T Inc scored a key win on Tuesday when a U.S. appeals court rejected the Trump administration`s argument that its $85.4 billion deal to buy media company Time Warner would mean higher consumer prices.

The Justice Department had asked the court to declare the deal illegal, arguing that AT&T, which owns DirecTV, would use ownership of Time Warner’s content, such as CNN and HBO`s "Game of Thrones," to make pay-TV rivals pay more or risk a blackout, thus raising prices for consumers by about 45 cents per month.

AT&T argued that prices would not rise because it had a financial incentive to avoid blackouts by licensing its content broadly to collect fees and advertising.

The deal had been closely watched in political circles after coming under fire from U.S. President Donald Trump, who opposed it because he saw it helping Time Warner`s CNN unit, which he has accused of broadcasting "fake news."

The three-judge panel on the U.S. Court of Appeals for the District of Columbia ruled unanimously in favour of the deal, saying that the government`s case was "unpersuasive." The decision could end a 15-month effort by the Justice Department to block it.

It was AT&T`s second major court victory against the Justice Department, setting the stage for the No. 2 wireless carrier to integrate its WarnerMedia business as well as its new Xandr advertising unit, as it transforms into a media company.

The deal has also been seen as a turning point for a media industry that has been upended by companies like Netflix Inc and Alphabet Inc`s Google which put content online with no need for a cable subscription.

The appeals court ruling, following an AT&T win in district court, meant that the Justice Department was unlikely to appeal, said two analysts.

"The case is effectively over," wrote New Street Research analyst Jonathan Chaplin.

The appeals court said it would give the Justice Department seven days to seek a rehearing or a review by the full appeals court before issuing the formal legal mandate.

AT&T said it hoped that this ruling would end the court fight. The Justice Department had no immediate comment.

AT&T shares rose 0.5 percent.

The merger, which was announced in October 2016, closed on June 14 shortly after Judge Richard Leon ruled the deal was legal under antitrust law.

AT&T closed the deal but agreed to manage the Turner network separately until Feb. 28, 2019, or until the conclusion of any appeal by the Justice Department.

AT&T agreed it would have no role in setting Turner’s prices to distributors and the number of Turner employees would remain largely unchanged.

The ruling meant that soon those restrictions would go away, said Craig Moffett, an analyst with MoffettNathanson.

"They’ve been forced to sit on their hands while they wait for this last piece of the puzzle," said Moffett. "You might see them become a bit more aggressive in offers that, for example, put HBO in front of wireless subscribers in new and interesting ways."

The appeals court took a shot at District Court Judge Leon, who had been scathing in his assessment of the government`s attempt to stop the deal.

"Undoubtedly the district court made some problematic statements, which the government identifies and this court cannot ignore," the panel said in its opinion.

Gigi Sohn, who worked in the Federal Communications Commission during the Obama administration, said that the ruling showed a need to reform antitrust laws so the government can stop problematic deals.

"AT&T is favouring both Time Warner and DirecTV content over its broadband services through its DirecTV Now and Watch services," she said. "Consumers are the losers."

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)