Judge could clear AT&T’s Time Warner deal with ‘no blackout’ fix

Bloomberg

AT&T Inc.’s wait is finally over. Nearly two years after inking an $85.4 billion deal to acquire Time Warner Inc., the phone giant will learn on Tuesday whether a federal judge in Washington will grant the US Justice Department’s request to block the takeover on
antitrust grounds.
The decision hinges on whether the combination of AT&T’s pay-TV and mobile-phone businesses with Time Warner’s content would raise prices for consumers.
While Judge Richard Leon could approve or block the merger outright, he also has another option: allow the tie-up with changes to protect AT&T rivals that buy Time Warner programming.

AN ARBITRATION FIX
The Justice Department’s case comes down to whether AT&T would gain bargaining power over rival pay-TV companies leading to higher costs for consumers.
The government argues AT&T could hammer rivals seeking Time Warner programming like CNN because it knows that if talks with a competing cable company break down and CNN becomes unavailable, some customers would switch to AT&T’s DirecTV business.
AT&T and Time Warner reject the government’s theory and say they’re motivated to sell their content as widely as possible. They have offered competitors the opportunity to go to arbitration to resolve disputes over programming, during which they have vowed not to pull Turner Broadcasting channels. Their offer doesn’t include HBO, however, which is one reason why the Justice Department says it isn’t a fix at all.
The question is whether the arbitration provision is enough to address any concerns Leon may have about the deal. AT&T is proposing so-called baseball-style arbitration, which requires each side to make its best offer, one of which is chosen by the arbitrator.
During the trial, Leon asked a witness from Charter Communications Inc. whether the arbitration proposal could be changed to resolve the cable company’s concerns about it. The executive said yes, explaining that his biggest issue is potentially being forced to accept terms that weren’t negotiated and that his company might not be able to honor.
“Is there a way that you could envision arbitration could be differently structured that would be mutually beneficial and mutually fair?” Leon asked Charter executive Tom Montemagno. “Yes, I believe so,” Montemagno replied.
If he wants to impose an arbitration measure, Leon first would have to find the Time Warner deal violates antitrust laws. But that doesn’t mean he would have to block it. Instead, he has significant leeway to impose a remedy that includes changes to the arbitration provision like including HBO or extending the offer beyond seven years, said Dan McInnis, an antitrust lawyer at Thompson Hine LLP in Washington. Doing that would still allow the deal to proceed.
AT&T would win an outright victory if Leon rejects the Justice Department’s case that the merger is illegal and denies the request for an order blocking the takeover. Under this scenario, Leon would have to find that the US failed to show that the combination would likely reduce competition. AT&T’s
arbitration offer would remain in effect for competing distributors, though Leon could clarify in his decision that the proposal is binding.