The AT&T and Time Warner Merger: A Microcosm of a Changing M&A Industry

in Business Organizations/Capital Markets/Technology

By Conner Morris

An Introduction to the AT&T and Time Warner Merger and the DOJ Appeal 

On June 12, 2018, a federal judge approved AT&T and Time Warner’s $85 billion merger, one of the largest mergers in the media and telecom industry history.[1] The merger will combine Time Warner’s content (HBO, CNN, Warner Bros, etc.) with AT&T’s distribution system.[2] While the merger was approved in court, the Department of Justice (DOJ) has not looked kindly on this merger and filed an appeal on December 6, 2018, which was subsequently denied on February 26, 2019.[3] The White House even commented on this merger, as President Trump stated that he did not approve of the deal because he feared the combination the two could pose a threat to consumers as the company would have the ability to control market prices.[4]  What makes this merger extremely interesting is what it means for the future regulation in this industry. While the DOJ’s appeal was denied, there are still fears that this challenge means more regulation is coming, and the DOJ has made several interesting statements regarding its challenge of this merger in order to seemingly quell those fears. However, market trends in the merger and acquisition industry seem to indicate otherwise, as developments in the tech industry impose greater pressure on large corporations to merge and therefore, may further pressure on the DOJ to regulate.

The Law Regarding the Regulation of Mergers and Acquisitions

The DOJ appealed the ruling that allowed Time Warner to merge with AT&T because it claimed the merger violated antitrust laws that were established in 20th century.[5] Early in the 20th century, to avoid monopolization from mergers and to protect consumers, the U.S. passed the Sherman Act and Clayton Act, which gave the government the ability to stop mergers that would substantially reduce market competition.[6] These acts are typically used to protect against horizontal mergers, which are between companies that directly compete with one another and pose a direct threat to market share.[7] What makes the challenge of the Time Warner and AT&T merger unique is that it is a vertical merger rather than a horizontal merger. Vertical mergers are typically between companies that operate along the same supply chain and are done in order to get better control of the supply chain.[8] For instance, AT&T distributes content while Time Warner creates content, which is different than two distribution companies or two content companies merging together. Through this vertical merger, AT&T is simply trying to gain better control of its supply chain. This merger has garnered so much attention in part because vertical mergers were not typically flagged by the DOJ, as anti-trust laws are designed to protect consumers from unfair market monopolization, and vertical mergers typically were not seen to pose a threat altering market shares drastically. [9]

The DOJ’s Response to Overregulation Fears

How has the government responded to fears that the DOJ’s appeal of the deal marks a new shift in their focus regarding the way they will regulate and scrutinize mergers? The answer to this question has been highly debated as of late. The DOJ’s challenge of this merger makes it the first time since the Nixon era that the government has gone to court to challenge a vertical merger.[10]

The DOJ’s challenge of this merger makes it the first time since the Nixon era that the government has gone to court to challenge a vertical merger.

Thus, some analysts believe that even though the DOJ lost its appeal, its focus on this merger means that it will begin challenging more vertical mergers, which could possibly discourage future companies from attempting to do similar mergers.[11] However, there are mixed opinions as to whether the DOJ’s focus on this merger means that it no longer views vertical mergers as efficient and beneficial to competition and consumers, or whether this case is instead discrete and fact specific. While the assistant attorney general for antitrust says that fear of more regulation is overblown, DOJ has sent mixed signals regarding such new policies.[12] Makan Delrahim, the assistant attorney general for antitrust, reassured investors that the DOJ’s scrutiny of this merger does not mean more regulation on other vertical mergers will result because this case was rather fact specific.[13] There is evidence supporting this point, as other companies as well as consumers have also expressed fear that Time Warner’s content is so unusually valuable with networks like HBO, CNN, etc., that AT&T will have an unfair advantage over other networks by being able to hold those channels ‘hostage’ for higher prices. [14] Furthermore, Eric Meiring, former acting chief in the DOJ’s trust division, states that fears in this merger regarding negotiating leverage are not always common in all vertical mergers. This seems to be supported by the fact that vertical mergers that have taken place after the AT&T Time Warner merger, such as the Cigna Corp and Express Scripts Holding Co. merger, were not challenged.[15] Thus, statements from the DOJ appears as an attempt to ease fears that the challenge of this merger means further regulation will follow; however, growth in the merger industry indicates otherwise.

Why More Regulation Seems Inevitable

Although the DOJ is trying to quell fears of further regulation of vertical mergers, further regulation may be inevitable. The AT&T merger is part of a broader economic trend driven by the threat of the tech industry in which more and more large corporations are being forced to merge in order to compete. To understand why the DOJ decided to focus on this merger, it is important to understand where this merger fits in the larger context of recent trends in mergers and acquisitions. While the AT&T and Time Warner merger is a huge merger between two of the largest companies in the world, it is just one of many large mergers in 2018.[16]

While the AT&T and Time Warner merger is a huge merger between two of the largest companies in the world, it is just one of many large mergers in 2018.

In 2018, the values of mergers and acquisitions increased by 61% and was totaled at over $3 trillion, which is the largest number on record.[17] In the first half of 2018 alone there were 36 mergers over $10 billion.[18] What has led to this increase in mergers? The answer for many analysts lies in the tech industry. Throughout the last few years, the tech sector, particularly companies like Amazon and Netflix, are barreling their way into numerous industries including entertainment, medical, and retail with countless acquisitions that have totaled billions of dollars.[19] In the entertainment industry, Amazon Prime and Netflix are applying major pressure to cable providers as each year more and more viewers are lost to streaming platforms. To adjust to this new economic climate, “companies have turned to mergers and acquisitions for growth, trying to grab market share and reinvent their business models . . ..”[20] Therefore, it seems that it could be argued that the DOJ’s focus on the AT&T and Time Warner merger is a response to the new economic climate in which companies are looking to merge to remain competitive rather than simply a change in the DOJ’s policies. Even though the DOJ’s appeal of this merger was defeated, in this climate the challenge of more vertical mergers is almost certain to happen because more mergers involving huge companies that might be labeled as vertical will increase and will pose similar threats to market monopolization.



[1] Hadas Gold & Brian Stelter, Judge Approves 85 Billion AT&T-Time Warner Deal, CNN (June 13, 2018), https://money.cnn.com/2018/06/12/media/att-time-warner-ruling/index.html.

[2] Id.

[3] Marci Gordon & Tali Arbel, AT&T Wins Appeal for 81B Purchase of Time Warner, TIMESUNION (Feb. 26, 2019), https://www.timesunion.com/business/article/AT-T-wins-appeal-for-81B-purchase-of-Time-Warner-13647172.php.

[4] Brian Selter, Was Trump a Factor? Time Warner Says DOJ Suit Was Motivated by Politics, CNN (June 12, 2018), https://money.cnn.com/2018/06/12/media/president-donald-trump-att-time-warner/index.html?iid=E.

[5] The Antitrust Laws, Fed. Trade Comm’n, https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws.

[6] Id.

[7] U.S. Dep’t of Commerce, 5 Types of Company Mergers, MBDA (Apr. 5, 2012), https://www.mbda.gov/news/blog/2012/04/5-types-company-mergers

[8] Id.

[9] Hadas Gold & Brian Stelter, Judge Approves 85 Billion AT&T-Time Warner Deal, CNN (June 13, 2018), https://money.cnn.com/2018/06/12/media/att-time-warner-ruling/index.html.

[10] Shaban Hamza, It’s Not Looking great for the Justice Department’s Appeal of the AT&T- Time Warner Merger, WASH. POST (Dec. 6, 2018), https://www.washingtonpost.com/technology/2018/12/06/its-not-looking-great-justice-departments-appeal-att-time-warner-merger/?utm_term=.6a11c103ee0c.

[11] Liana Baker, U.S. Anti-Trust Official Say Worries Over Limiting Vertical Deals Misplaced, REUTERS (June 7, 2018), https://www.reuters.com/article/us-usa-m-a-vertical/u-s-antitrust-official-says-worries-over-limiting-vertical-deals-misplaced-idUSKCN1J32NT.

[12] Id.

[13] Id.

[14] See id.

[15] Id.

[16] Stephen Grocer, A Record 2.5 Trillion in Mergers Were Announced in the First Half of 2018, N. Y. TIMES (July 3, 2018), https://www.nytimes.com/2018/07/03/business/dealbook/mergers-record-levels.html.

[17] Id.

[18] Id.

[19] Louis Columbus, 5 Acquisitions That Will Fuel Amazon’s Next Growth Phase, FORBES (Apr. 22, 2018), https://www.forbes.com/sites/louiscolumbus/2018/04/22/5-acquisitions-that-will-fuel-amazons-next-growth-phase/#49eda8c665ba.

[20] Stephen Grocer, A Record 2.5 Trillion in Mergers Were Announced in the First Half of 2018, N. Y. TIMES (July 3, 2018), https://www.nytimes.com/2018/07/03/business/dealbook/mergers-record-levels.html.