In a crusade to save its planned $85 billion takeover of Time Warner, AT&T has pressed a legal fight rife with drama befitting a deal that involves the provider of CNN news coverage and HBO’s “Game of Thrones.”
Pointing to President Donald Trump’s contempt for CNN coverage and public opposition to the deal itself, AT&T and Time Warner questioned early on whether political retribution was behind the U.S. Department of Justice’s decision in November to block the acquisition.
The Justice Department, bringing further theater to the proceedings, has likened AT&T CEO Randall Stephenson to Captain Renault from the classic film “Casablanca,” comparing the executive’s professed surprise over seeing the merger challenged to the duplicitous character’s famous line, “I’m shocked, shocked to find that gambling is going on in here!”
Meanwhile, the Justice Department has pressed its case that AT&T would wield control over the Time Warner network to hinder rivals, resulting in higher prices for U.S. consumers. It’s been decades since the government challenged a “vertical” merger—two companies that don’t sit in the same space on the supply chain.
The two sides are scheduled to head to trial Monday in Washington federal district court. Here’s what to watch.
“Not exactly a unicorn.”
For many antitrust experts, the Justice Department’s challenge has upended a decades-long understanding of how regulators view vertical mergers.
In the rare cases where vertical mergers have raised concerns, regulators and companies have reached agreements that allow the deal to proceed through narrow, targeted terms to address antitrust concerns.
The idea, as one antitrust expert put it, has been “preserve the good while addressing specific concerns [regulators] have.” One recent example was the 2011 settlement in which the Justice Department allowed Comcast’s acquisition of NBC Universal to proceed, with conditions meant to preserve competition.
The Justice Department has fought the notion that its challenge to the AT&T-Time Warner deal amounts to a significant departure from the recent history of antitrust enforcement.
In a recent opinion, Judge Richard Leon said DOJ lawyers have laid out a history of the department blocking similar deals. “So while it may, indeed, be a rare breed of horse, it is not exactly a unicorn,” Leon wrote.
The vertical nature of the deal leaves the Justice Department with a steeper hill to climb, as the merger would combine complementary businesses rather than eliminate a competitor.
How much will we hear about Trump?
Likely nothing at all—but not for lack of trying on AT&T’s part.
In the buildup to trial, AT&T pushed to unearth any communications between the Justice Department and the White House over the company’s proposed acquisition of Time Warner. AT&T pressed for that discovery based on the belief the company had been subjected to “selective enforcement”—singled out, essentially—based on the president’s scorn for CNN and past statement that the deal would put “too much power in the hands of too few.”
Leon last month rejected AT&T’s quest for communications between the Justice Department and the White House, ruling that the companies had failed to meet the “rigorous standard” for compelling discovery based on their belief that the merger challenge amounted to selective enforcement.
“[AT&T and Time Warner] have fallen far short of establishing that this enforcement action was selective—that is, that there ‘exist persons similarly situated who have not been prosecuted,’” Leon wrote.
Lawyers took the ruling as a clear sign Leon was interested in sticking to the antitrust issues and steering clear of politics—an aspect of AT&T’s defense that even some believers in the deal’s legality viewed as a red herring.
Meet the key players.
AT&T CEO Stephenson and the DOJ’s antitrust chief, Makan Delrahim, have sparred with each other from afar in the buildup to trial. Stephenson has questioned Delrahim’s motives in bringing the challenge and called attention to a 2016 interview in which Delrahim told a Canadian television station that he did not see the deal “as a major antitrust problem.” Delrahim joined the Trump administration from Brownstein Hyatt Farber Schreck’s Los Angeles office, where he was a top lobbyist for tech and health care companies.
After speaking in person, the two have given differing recollections of their conversations. Delrahim said Stephenson asked whether the Justice Department would approve the deal if AT&T sold CNN. Stephenson has denied ever offering to sell the news network to win the Justice Department’s approval.
A year removed from defeating Aetna Inc.’s proposed acquisition of Humana, Craig Conrath is returning as lead trial counsel for the Justice Department in the challenge to AT&T and Time Warner’s deal. Conrath, a veteran litigator in the Antitrust Division, previously represented the government in an antitrust trial against American Express Co., which the Justice Department won in 2015 before losing on appeal.
AT&T is represented by O’Melveny & Myers partner Dan Petrocelli. A seasoned trial attorney, Petrocelli is not necessarily a household name within the antitrust bar but comes from a firm that is often called upon to defend deals. Staples Inc. chose Weil, Gotshal & Manges litigation partner Diane Sullivan for the defense of its proposed acquisition of Office Depot. (The FTC ultimately won a preliminary injunction, prompting Staples and Office Depot to scrap the deal.)
Notably, it was Leon who oversaw the Justice Department’s settlement in 2011 with Comcast and NBC Universal. An appointee of former President George W. Bush, Leon has already put his mark on the case by refusing AT&T’s quest for correspondence between the White House and the Justice Department. He said at a pretrial hearing Thursday the trial will last between six and eight weeks.
Two dollar amounts could feature prominently: 45 cents and $463M.
The Justice Department’s expert witness, University of California, Berkeley, business and economics professor Carl Shapiro, has estimated the merger will bring a $463 million increase in costs to U.S. consumers. AT&T’s response: That would amount to a monthly increase of 45 cents per customer.
AT&T’s lawyers challenge the government’s claim that the deal would raise costs—and they question whether the alleged per-customer increase of 45 cents justifies squelching the deal on antitrust grounds.
“The government’s central claim in this case is that the merger of AT&T and Time Warner will lead to a theoretical 45 cent increase in the average monthly pay-TV bills for U.S. television consumers—an increase of 0.4 percent in an average monthly bill,” AT&T’s lawyers wrote in a brief filed this week. “Apart from the remarkably small size of the alleged increase, there are several independent reasons why the evidence cannot support the government’s claim.”