AT&T-Time Warner deal faces no obvious regulatory hurdle, but investors remain wary of Trump

7 August 2017. By Curtis Eichelberger.

Antitrust lawyers, ex-government officials and even competitors say AT&T's $85.4 billion acquisition of Time Warner is a clean merger that is likely to be approved with a consent agreement addressing antitrust concerns.

But in this period of regulatory uncertainty ushered in by US President Donald Trump, Wall Street isn't buying it just yet.

Time Warner is trading at about 5 percent less than the offer price, implying that investors still have some doubts that the deal will receive antitrust approval in a timely fashion. AT&T says it hopes to complete the merger by the end of the year.

Their big concern? Trump. Any other president and the spread would be negligible, hedge fund managers told MLex.

"Trump is unpredictable," said one investor. "He said he would block the deal, and as he becomes more emboldened he plays to his base. It's understandable the market wants to price in the unpredictability of the administration."

— Public statements —

Trump first injected risk into the deal during a campaign speech last October when the then-candidate said, "As an example of the power structure I'm fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it's too much concentration of power in the hands of too few."

The president cannot, in theory, block a deal for reasons other than national security. At most, he can instruct the Department of Justice's Assistant Attorney General to file a federal lawsuit to deny a merger on the grounds that it is illegal. Ultimately — assuming the parties to a deal are willing to endure the time and expense associated with a court fight — a judge would decide the case based on US antitrust law, and not the whims of a politician.

— Vertical mergers —

Attorneys say AT&T-Time Warner is a straight vertical merger — the type of deal in which one company buys another in the supply chain. In this case, AT&T, a content distributor, is buying Time Warner, a content creator.

This type of combination is challenged less-often by the antitrust agencies. The biggest threat in this sort of vertical merger is that the acquirer will favor its own content over that of its competitors.

But even critics of this deal have suggested to the Justice Department that the merger could be approved with a consent agreement to handle competition-related concerns.

Another factor giving investors pause is the government's track record of breaking up deals. In recent years, some Wall Street investors were caught off-guard when deals such as Lam Research-KLA-Tencor, Applied Materials-Tokyo Electron and Walgreens-Rite-Aid fell apart amid regulatory concerns.

"The regulators are unpredictable," one investor said regarding antitrust reviews.

— Delrahim —

Incoming AAG Makan Delrahim won't be up for a confirmation vote until September at the earliest, but he already tipped his hand in comments he made to Canadian business channel BNN last October.

"Just the sheer size of it and the fact that it's media, I think will get a lot of attention," he told the news channel. "However, I don't see this as a major antitrust problem."

Lawyers say only a surprising development could provide a traditional legal rationale for the DOJ to seek to block the deal outright — for instance, the discovery of internal company documents indicating a plan to foreclose competition and raise prices for consumers.

In other words, a smoking gun.

But even absent a clear legal rationale for blocking the deal, the president's personal animus toward CNN and his frequent defiance of procedural norms create an atmosphere of uncertainty around the deal.