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How the AT&T-Time Warner Decision Could Change the Future of Big Media Mergers

Court is expected to make its decision on Tuesday

A lot is riding on U.S. District Judge Richard Leon’s decision to either approve or deny AT&T’s $85.4 billion acquisition of Time Warner — a ruling expected to be made on Tuesday.

On the line is the future of one of the country’s largest media and entertainment companies, Time Warner, and that of the biggest telecom company, AT&T. But it’s more than just these two multibillion-dollar companies hanging in the balance — Leon’s decision could also alter the course of Disney and Fox’s looming $52 billion merger as well as other efforts to consolidate media giants.

CFRA analyst Tuna Amobi said this has the potential to be a landmark ruling.

“This merger really speaks to the importance of scale,” Amobi told TheWrap. “Scale has become such a major cornerstone in the media and tech industries.

“This is one of those potentially landmark deals that’s no doubt been closely watched by the entire industry and the M&A market,” he continued. “It’s one of those deals that will pretty much reshuffle the competitive deck.”

During AT&T and Time Warner’s trial against the Department of Justice, Time Warner CEO Jeff Bewkes told the court that the merger was a necessary step for the company to better compete with the likes of Facebook, Google and other internet companies in advertising as well as against online entertainment platforms like Netflix and Amazon.

Merging with AT&T gives Time Warner a direct pipeline to viewers, a necessity in today’s media landscape, as consumer demand for affordable and readily available quality entertainment, coupled with an excess of options, sends media companies scrambling to deliver.

Faced with a similar situation, Disney has invested billions into two direct-to-consumer streaming services that will allow it to control revenue streams and distribution for its content.

For AT&T, Time Warner offers it a suite of sought-after content and brands.

Disney is undoubtedly keeping a close eye on AT&T-Time Warner as its acquisition of the majority of Fox’s assets faces threats from Comcast, which has said it plans to offer Fox shareholders a “superior” $60 billion all-cash deal for the company’s assets.

“It’s almost certain that if the deal goes through you’ll see Comcast emboldened to make a move on Fox, as they said they’re looking to do,” Amobi said.

Needham analyst Laura Martin agrees with Amobi, saying that a favorable decision for AT&T and Time Warner makes things more difficult for Disney by giving Comcast more confidence its bid could succeed. There are more regulatory risks surrounding a potential Comcast deal, she explained.

“If AT&T loses the case, it’s harder for Fox to justify being bought by Comcast than Disney, no matter how much they pay extra,” Martin told TheWrap. “Comcast couldn’t get its last deal done with Time Warner Cable, so Fox will be worried about wasting a year trying to close a deal regulators won’t approve.”

If AT&T and Time Warner prevail, however, it will not only embolden Comcast but lead a host of other companies to come down with merger and acquisition fever.

“The immediate impact will be on the Fox/Disney/Comcast love triangle,” Martin said. “From a wider scope, a lot of other companies in many industries will likely look to merge and fight back against the DoJ, if they try to block it.”

AT&T and Time Warner present the first major M&A [mergers and acquisitions] test under the Trump administration. President Trump vowed during his campaign back in 2016 when the deal was announced to block it. In fact, there was so much uncertainty that when Trump took office, AT&T paid the president’s personal lawyer Michael Cohen $600,000 for any advice on the merger.

It’s odd that the government would try to block a vertical merger like this one. Amobi said he hasn’t seen the Justice Department take such action in a long time. But this case will set a precedent for mergers to come because if it goes through, it would make a compelling case that the law is on the side of companies looking to merge, especially in the media industry.

“We could run down the whole list of media companies that are likely to become more attractive content plays for M&A if this deal goes through,” Amobi said. “Lionsgate comes to mind, maybe AMC Networks. These smaller content companies could become potential targets.

“Shareholders could be more receptive to takes outs because they know the competitive landscape is shifting under their feet.”

However, if Judge Leon rules against AT&T and Time Warner, merger talks across the board could be reevaluated, or altogether extinguished.

“If the government is successful,” Amobi said, “it would definitely throw some cold water on some of these deal talks.”