After securing approval for its $85 billion Time Warner merger from all other parties necessary, AT&T hit an unexpected roadblock in the US Department of Justice (DoJ). So what might the fallout look like if the deal doesn’t go through after all?
Reports of strained negotiations between the operator and DoJ regulators have been popping up almost daily of late, painting a picture of a rocky road forward.
Warning signs first appeared when The Wall Street Journal noted the DoJ was preparing for potential litigation to halt the deal. Last week, Financial Times indicated the DoJ had asked AT&T to give up Time Warner’s CNN property in exchange for approval of the merger, but AT&T CEO Randall Stephenson refuted the report at a conference a day later by stating he had “never been told that the price of getting the deal done was selling CNN”.
Stephenson added AT&T is “prepared to litigate this now”, and Bloomberg subsequently reported AT&T would pursue an investigation into whether the Trump White House – which has made no secret of its opposition to the deal – influenced the DoJ if the issue does make it to court.
As highlighted by Recode, President Donald Trump told reporters asking about the AT&T bid he “didn’t make that decision”.
Trump added: “that probably ends up being litigation, maybe not, we’ll see how it all plays out.”
The court scenario is looking increasingly likely. Additional reports surfaced this week indicating the DoJ is shopping around a draft complaint against AT&T, looking for support from state attorneys general (AGs) to block the merger. Reuters reported 18 state AGs, which are reviewing whether the deal could harm competition, had been approached.
So far, however, CNBC sources said there is extremely limited support from state AGs, with “potentially zero” agreeing to back the DoJ.
Worst case scenario
But what happens if the merger is blocked in court, or if the companies simply decide to walk away from the deal after the 22 April closing deadline passes?
Recon Analytics founder Roger Entner told Mobile World Live it would leave AT&T back at square one – where they are today – and faced with a decision to double down on content creation like Netflix, Amazon and Apple are doing or continue paying for content from other sources.
“They already have a handful of their own channels and have the choice of doubling down on that and building it themselves, but that’s a long and arduous task and you have to spend billions of dollars. For some that has worked out spectacularly, others have failed miserably.”
Entner pointed out one thing which would be lost if the merger is scrapped is a particular opportunity for an entity which already controls distribution and devices to also oversee content custom made with mobile in mind.
“Still today we don’t have that: all the content we have is optimised for large screens,” he said.
As for Time Warner’s fate in the event of a failed merger, BTIG media and tech analyst Rich Greenfield indicated the company could have a number of other suitors step forward.
Greenfield said Fox is at the top of the list, as it was “keen to own Time Warner in 2014 and given their desire for increased scale, we have to imagine they would want to try again”. Other takers might include Disney, which recently tried to purchase a part of Fox, or Comcast and Verizon, though the latter two would face similar challenges experienced by AT&T in securing regulatory approval.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.