NEW YORK/WASHINGTON (Reuters Breakingviews) - Randall Stephenson is going to war. The AT&T chief executive is fighting the U.S. Department of Justice after it sued to block his $85 billion merger with Time Warner. Faced with similar opposition six years ago, Stephenson gave up a $39 billion tilt for T-Mobile US. Anything less than all-out victory this time would be fatal.
The antitrust watchdog dropped a lawsuit on Monday citing concerns that the combination would lead to higher prices for millions of television viewers and slow innovations like video streaming. The government said AT&T could force rivals to pay more for Time Warner’s trove of prized content like “Game of Thrones” network HBO.
Stephenson did not shrink from the challenge: “We are going into this to win,” he said on a conference call with reporters. Nor is he willing to give in to DOJ demands that AT&T either sell satellite pay-TV firm DirecTV – which it bought in 2015 for $48.5 billion – or get rid of Time Warner’s cable-network group that includes CNN. What’s more, he suggested that President Donald Trump’s angry tirades against CNN – what he described as “the elephant in the room” - may be at play in the government’s lawsuit.
Yet this is not the first time the CEO has misjudged regulators’ stance toward its merger strategy. In the failed T-Mobile deal, AT&T assumed the government would view the mobile-phone market in terms of local competition, which might be addressed with some divestments, instead of on a national level. Not only did it lose its target, AT&T ended up handing T-Mobile a hefty break fee that funded a price war.
In pursuing Time Warner, AT&T believed behavioral remedies such as consent decrees requiring it to license content on fair terms would satisfy DOJ’s competitive concerns, as they had with Comcast’s takeover of NBC Universal. But in a speech last week, antitrust chief Makan Delrahim made clear he prefers structural solutions like divestitures rather than concessions that require continuous monitoring.
The government has the burden of proving the transaction will cause harm and past legal history – no vertical merger has been blocked since the Nixon administration in the early 1970s - bolsters AT&T’s arguments. But deals that might have tested the case law, such as Lam Research’s $10.6 billion bid to acquire chip supplier KLA-Tencor, have been abandoned. Stephenson has left himself no room for such a retreat.
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