AT&T’s court victory a setback for US merger enforcement

Bloomberg

AT&T Inc.’s sweeping court victory allowing its takeover of Time Warner Inc. delivers a sharp setback to the Justice Department’s new approach to policing mergers under President Donald Trump and promises to spark a merger wave across industries.
The federal judge’s decision raises the bar for the government’s ability to challenge deals between companies that don’t compete directly. That opens a pathway for firms contemplating such deals, especially in media where distri- butors are racing to acquire content companies. Comcast Corp. is expected to be the first out of the gate, making a formal offer for 21st Century Fox assets, according to a person with knowledge of the matter who asked not to be identified because the details are private.
At issue for Comcast and other companies is how antitrust enforcers will approach so-called vertical deals that unite companies operating in different parts of a supply chain rather than direct competitors. The Justice Department’s lawsuit against the Time Warner takeover marked an unprecedented challenge after years of a light-touch approach by enforcers in similar deals.
“This ruling will open the floodgates, at a minimum, to more vertical mergers of this kind,” said Gigi Sohn, a former lawyer with the Federal Communications Commission and who is now at Georgetown University. “Comcast will bid for Fox’s assets. Other cable and broadband companies will look to merge with the remaining Hollywood studios and other programmers.”
The Justice Department’s lawsuit, led by antitrust chief Makan Delrahim, came against a backdrop of criticism that decades of lax merger enforcement by the government has led to increased concentration across industries. By bringing the Time Warner case, Delrahim took a tougher stand, breaking with past practice of approving vertical deals after placing conditions on how companies operate. Instead, Delrahim demanded the companies sell business units — so-called structural remedies — to fix competition problems.
His defeat makes it unlikely he can continue to deliver on that strategy, said Chris Sagers, an antitrust law professor at Cleveland-Marshall College of Law. “This is probably the end of meaningful vertical enforcement for a good long time,” Sagers said.

Delrahim Demands
Before the decision by USDistrict Judge Richard Leon, Delrahim indicated he wouldn’t back down from demanding that companies doing vertical deals sell assets to resolve
competition problems.
He argues that anything less requires antitrust enforcers
to act like regulators to ensure that companies comply with promises to conduct business
in a certain way.
The decision doesn’t necessarily spell the end for vertical enforcement because it’s so dependent on the specific facts raised in the Time Warner takeover, said Michael Carrier, a law professor at Rutgers Law School. Still, with the judge finding so many flaws in the government’s case, it’s clear the Justice Department will need to provide more evidence to prove its case next time.
“It really is an across the board rejection of the DOJ’s case,” Carrier said. “They need air-tight support for their economic theory of harm.” The impact of Leon’s decision was reflected instantly in media stocks. Fox, which already has an agreement to sell assets to Walt Disney Co., gained as much as 6.1 percent in late trading as the AT&T win fueled expectations that a competing Comcast offer would face lower regulatory hurdles.