More Than AT&T-Time Warner: Media Mergers to Watch

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By Eleanor Tyler

The Justice Department’s antitrust division would be plenty busy reviewing media mergers that are slated to close in the next year without its high-profile court challenge to AT&T Inc.'s $85 billion merger with Time Warner Inc.

The DOJ typically reviews mergers involving media or entertainment, and 2017 has been crowded with deals in all aspects of media. Newspapers, magazines, TV stations, and digital platform markets have all been shifting shape and assets this year.

In the first three quarters of 2017, media was the top industry group for proposed and announced deals over $10 billion, according to Bloomberg Law’s Quarterly M&A Market Update. From 2013 to 2017, media was second only to pharmaceuticals among industries that spawned the most mega-deals.

With media industries evolving this quickly, it’s a challenge for the DOJ to evaluate each market and project the competitive impact of a single merger over several years.

Here are the major media mergers to watch in 2018:

AT&T-Time Warner

The DOJ antitrust division’s challenge to the deal is new chief Makhan Delrahim’s first enforcement action. It also represents a change in policy from the previous administration. “Behavioral remedies” were ordered in Comcast Corp.'s merger with NBCUniversal in 2012, but Delrahim has grave reservations about extracting promises from companies as conditions for a merger.

AT&T and Time Warner assert that they are entitled to the same treatment Comcast got because, like Comcast-NBCUniversal, they aren’t direct competitors. But the DOJ has demanded divestitures to ensure that the remedy is permanent, unlike the government restrictions in the Comcast-NBCUniversal deal, which will expire in 2018.

The AT&T-Time Warner deal has cleared the EU, the Canadian Competition Bureau, and Brazil’s antitrust authority. None of that likely will matter if the U.S. regulator prevails in court.

Trial is scheduled to start before a D.C. federal judge on March 19. AT&T and Time Warner have until April 22 to close their deal under their current agreement, but they will likely extend that date. If court permanently blocks the deal, AT&T will owe Time Warner a $500 million breakup fee.

Discovery-Scripps

The $14.6 billion dollar tie-up between Discovery Communications Inc. and Scripps Networks Interactive Inc., announced July 31, would create a combined company with almost $10 billion in revenue. Nearly 20 percent of the ad-supported, pay-TV viewership in the U.S. would tune in, according to the parties.

The parties say the agreement is contingent on three authorities approving it — U.S. antitrust regulators, the European Commission, and the competition regulator on the Channel Island of Jersey, a dependency of the U.K.

Discovery and Scripps received a second request for information from the DOJ on Oct. 13, signaling the agency has flagged some anticompetitive problems to review.

The parties notified the EU of their intent to merge on Dec. 8, and the current provisional deadline for European regulator to complete its initial review is Jan. 23, 2018. Discovery’s shareholders have approved the stock issuance necessary for the deal.

Sinclair-Tribune

Sinclair Broadcast Group, the biggest local television station owner in the U.S., announced in May that it is buying Tribune Media for $3.9 billion. The combined company would, by some estimates, reach 72 percent of television households.

The deal requires approval by both the Federal Communications Commission and the DOJ. Tribune shareholders have already approved it.

Sinclair and Tribune received a second request for information from the DOJ on Aug. 2. The FCC has delayed its review to get more public comment, a move that the companies describe as commonplace.

To gain regulatory approval, “Sinclair agreed to divest one or more television stations in the overlap markets as necessary to comply with the FCC duopoly rule or to obtain clearance,” the parties said in filings.

But this deal is a good reminder that states can also challenge a proposed merger. Sinclair disclosed in regulatory filings that Washington’s attorney general is reviewing the merger for its impacts on spot advertising and retransmission consent rights in the Seattle-Tacoma area.

Four other state attorneys general — Illinois, Maryland, Massachusetts, and Rhode Island — weighed in against the deal in a letter to the FCC Nov. 2. “The proposed transfers will increase market consolidation above the acceptable statutory limit, reduce consumer choices, and threaten the diversity of voices in media,” the AGs said.

Sinclair’s CFO Lucy Rutishauser said Nov. 9 the parties hope to close by the year’s end or in early 2018.

Meredith-Time Inc

U.S. media company Meredith’s $2.8 billion Nov. 26 bid for Time Inc. is in its early days. It’s the largest magazine deal in a year crowded with them, many as private transactions: American Media Inc. bought US Weekly from Wenner Media for $100 million in March. Then American Media bought Men’s Journal in June for an undisclosed price. Book and magazine publisher Rodale Inc. sold to Hearst Corp. in October for a sum rumored to be around $225 million.

Closely-held Meredith, which includes among its publications Better Homes & Gardens and Family Circle, plans to purchase Time via a tender offer at $18.50 a share. Time owns Fortune, Sports Illustrated, and Entertainment Weekly, among other titles.

Whenever an industry undergoes a spasm of reshuffling, like print media in recent years, antitrust review of the larger mergers gets more complicated. The Meredith-Time deal includes many complementary aspects that shouldn’t give regulators pause, but there is overlap in some print markets. Meredith also said the merged entity would gain in digital media and data, which could raise antitrust flags.

Post-merger, CEO Stephen Lacy told investors it will be a “digital business that will rank No. 6 in the United States based on user traffic and generate approximately $700 million of digital ad revenues.” Meredith also “will be a top-tier data player with a database of more than 250 million email addresses/device IDs, paired with leading advertising technology platforms and shopper marketing capabilities,” according to the deal announcement.

Meredith said it’ll have “170 million unique monthly visitors in the U.S. and over 10 billion annual video views.”

Those digital and data markets will be of particular interest to regulators, although the merging parties say the space is highly competitive. Meredith President and COO Tom Harty said Nov. 27, “In the world of media today, there is a big universe out there, and this should clear.”

Meredith’s financing includes $650 million preferred equity from Koch Equity Development, an investment arm of Koch Industries. Meredith told investors that Koch Equity didn’t demand a board seat and will be a passive investor in the venture.

The parties expect to close in the first quarter of 2018.

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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