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AT&T-Time Warner Merger in Jeopardy: 5 Scenarios for What Happens Next

All options are on the table as $85 billion mega-deal may be off

The $85 billion merger of AT&T and Time Warner suddenly seems to be in jeopardy — or at least, the previously held belief that it would close before the end of the year.

In recent days, reports have emerged that the Department of Justice won’t let the former Ma Bell’s $85 billion acquisition of Time Warner go down unless the company sells off CNN, something that AT&T chief Randall Stephenson has said just isn’t happening.

It’s no secret that Donald Trump and the Jeff Zucker-led cable news network are not exactly fans of one another, but it’s rare for a president to use a government’s antitrust arm for seemingly political reasons.

So how will this play out? Here are five possible scenarios:

1. Time Warner Unbundles
AT&T’s pending $85 billion takeover was predicated on combining the company’s widespread mobile network with Time Warner’s bevy of content producers, including HBO, CNN, and Warner Bros.

But that media colossus would be curtailed if the Justice Department insists that Time Warner offload Turner Broadcasting — which includes CNN — or any other portion of the company as part of its antitrust approval.

Stephenson shot down a report that he offered to unload CNN to get the deal pushed through. “I have never offered to sell CNN and have no intention of doing so,” he said in a statement on Wednesday. And the cable network has enjoyed record ratings before and after the 2016 election, with CNN recently posting its best third quarter viewership ever.

Other channels under the Turner banner would be too juicy for AT&T to let go as well. TNT has a deal in place with the NBA through 2025, and its family of networks enjoys the cash cow that is NCAA March Madness each year. With live sports increasingly coming at a premium, having Time Warner sell off its cable networks would be a deal-wrecker for AT&T.

Finding a buyer for its Warner Bros. stable could be fruitful; DC Films, which is part of its arsenal, would snag a healthy bounty as Hollywood doubles down on its superhero fixation. Warner Bros. recent run of success at the box office has been offset by declining TV revenues, though, as viewers increasingly turn to streaming alternatives.

Some reports have suggested that Warner Bros. and HBO be spun off into their own thing — but giving up both the box office and Home Box Office seems like a big sacrifice. The entire package is where the value lies and why Time Warner is such a target — don’t hold your breath on any major breakup just to get a deal done.

2. The Justice Department Blinks
There’s not much precedent for the Justice Department to reject a deal like this which involves companies in very different industries.

And despite his campaign rhetoric about squelching the deal over his distaste for “fake news” CNN, he has recognized the limits of his authority over the government’s legal branch.

“The saddest thing is that because I’m the president of the United States, I am not supposed to be involved with the Justice Department,” Trump said recently on the radio program “The Larry O’Connor Show.” “I’m very unhappy with … the Justice Department. I am not supposed to be doing the kind of things that I would love to be doing. And I am very frustrated by it.”

3. Mega-Deal Gets Its Day in Court
If negotiations break down, AT&T could just close the deal and force the DOJ to sue and ask a federal court to immediately block the merger.

Stephenson has been “prepared to litigate from Day 1 of the deal,” he said Thursday at the New York Times DealBook talk. Should it head to the courts, Stephenson added, “Sooner is better,” and he said he would request — and expect — an expedited hearing.

There’s no telling how a court might rule. “It’s not a ridiculous theory” if DOJ lawyers argue that the merger is anti-competitive because AT&T refused to divest Turner Broadcasting assets, George A. Hay, a former DOJ anti-trust official who teaches anti-trust law at Cornell Law School, told TheWrap.

But, Hay added, “It would be strange indeed if DOJ said we’re going to block this because of CNN.”

It’s routine for the DOJ to demand some concessions in big media mergers such as the Turner Broadcasting/Time Warner and Comcast/NBC Universal marriage, Hay said. Government lawyers forced those companies to sign consent decrees promising not to hike prices when selling content to competing distributors, he said.

Trump’s public opposition to the AT&T/Time Warner merger because he does not like CNN’s reporting on him probably isn’t likely to play a role in a court battle, Hay said. “It will be decided on the merits.”

4. AT&T Just Moves On
If Stephenson’s mega-deal does end up unraveling, the telecom giant is likely to look for another content producer to execute the all-in-one strategy the company has been touting for over a year.

One possible target: Viacom, which has been on the block for some time, and nearly sold a 49 percent stake in its Paramount Pictures film division to China’s Wanda Group back when the latter was still allowed by the Chinese government to make entertainment deals.

However, Viacom’s film studio and cable channels are not nearly as strong as Time Warner’s portfolio — although it doesn’t own a cable news network that could be used as a political football.

And what about Fox? Rupert Murdoch & Sons seem open to selling much of 21st Century Fox for the right price. Here’s the thing, though — in their recent talks with Disney, Fox brass weren’t interested in unloading Fox News (or other assets, like the Fox broadcasting network and Fox Sports where Disney would clearly have faced antitrust concerns). For a company like AT&T that clearly wants CNN in its portfolio, that feels like a bit of a deal-breaker.

By the way, on April 22, 2018 — Stephenson’s birthday — both AT&T and Time Warner can walk away from the deal.

5. Time Warner Becomes the Belle of the Bidding Ball – Again
A broken deal is also not likely to deter Jeff Bewkes’ efforts to sell Time Warner. Fox made an $85-per-share offer to buy the company in 2014, but it’s unlikely to be a suitor now — especially after holding talks to sell the majority of the company to Disney.

But cable and other pay-TV companies looking for their own owned-and-operated content producers, such as Altice, could certainly come to the table.

And don’t forget Big Tech — Apple and Facebook plan to spend billions on programming over the next few years, and it wouldn’t be hard for them to come up with the $85 billion AT&T was willing to spend for Time Warner.

Susan Seager contributed to this story.