Deeper Dive—Huge M&A opportunities slip away as DOJ muddies waters with inexplicable AT&T-TWX denial

U.S. Justice Department
The Justice Department's decision to contest AT&T’s bid to buy Time Warner Inc. baffled not only telecom and media CEOs but also antitrust scholars, media industry experts and economists. (Coolcaesar/Wikimedia)

Regardless of your idealogical bent, you have to feel for the top managers of the major media and telecom conglomerates. 

They’re operating in perhaps the most favorable regulatory climate in 50 years, with pro-big business lawmakers controlling the White House, both sides of Congress and the FCC. 

Yet, with the Justice Department's decision to contest AT&T’s bid to buy Time Warner Inc. baffling not only telecom and media CEOs but also antitrust scholars, media industry experts and economists, confused paralysis has begun to replace bold, decisive action. 

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"For the first time, I don't understand what's possible regulatorily when it comes to horizontal integration or to vertical integration, and even whether or not behavioral remedies will be meaningful again," said Leo Hindery, managing partner of InterMedia Partners and the former CEO of both TCI and AT&T Broadband, to CNBC this week. "There are now inconsistent strategies from company to company and people are stepping every day into each other's sandboxes.”

Indeed, the best of times is also the most vexing.

"For the longest time, we had decades of very successful vertical integration, with common finish lines for the whole of the media and telecommunications industries," Hindery said. "Not anymore."

By most accounts, AT&T’s proposed $85 billion takeover of Time Warner Inc. should be evaluated as a classic “vertical” merger, one in which no competitors are removed from the market. As an example, Forbes cited the “smooth sailing” for the review of Amazon’s purchase of Whole Foods last year. 

For its part, the Justice Department is hoisting the untested argument that AT&T will have the ability to withhold and jack up prices for TNT, CNN and other Time Warner assets, even though new forces of competition in regard to distribution and content creation seem to emerge in the video business on an almost weekly basis. 

AT&T is pretty confident that it’ll prove that point in court, but that will take time, and pristine regulatory environments don’t last forever.

There are a lot of polarizing, out-there theories floating around the media/telecom business right now. Last year, for example, I thought it was wacky when I had readers tying exiled former NFL quarterback Colin Kaepernick’s kneeling during the National Anthem to a drop in TV ratings for the league.

I also thought it was dumb when folks began to speculate that the Justice Department is undermining entire industries with flimsy legal arguments, all at behest of a president who doesn’t like how CNN covers his work. 

But both theories are picking up steam. 

Regardless of the inspiration, the AT&T/Time Warner impasse does appear to be log-jamming major deals. This week, for example, CNBC reported that Comcast is waiting to see if chief rival AT&T will succeed in acquiring TWX before responding by surpassing Disney’s $66.1 billion bid for select 21st Century Fox assets. 

And the clock’s ticking. Just 15 months ago, the telecom business was beside itself, anticipating a government that would remain pro-Google and regulation-tight, just it had been for the previous eight years. 

With a wave of change expected to hit Congress in November’s national election, who can say how long this good M&A weather will last.