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After the government’s all-out loss in its bid to block the AT&T Inc. and Time Warner Inc. merger, antitrust attorneys say the Justice Department will need to strike a balance between effectively policing pending deals and not waging another full-blown court battle.
“I expect the DOJ will continue to evaluate each case on its merits and on its facts as always,” Eric Mahr, antitrust partner at Freshfields Bruckhaus Deringer LLP in Washington, told Bloomberg Law. “At the same time, this was a big case for the Trump administration and they are now in a bit of a difficult position,” said Mahr, who previously served as director of litigation for the DOJ’s antitrust division.
Companies looking to merge will be required to deal with the government, as always, but deal attorneys predict that those firms will be emboldened in negotiations. The antitrust division may need to soften its stance against “behavioral” fixes, such as promises to set prices fairly, for otherwise anticompetitive mergers, they added.
Deal-makers, especially in “vertical” mergers across different markets, have new confidence after Judge Richard Leon of the U.S. District Court for the District of Columbia ruled June 12 that telecom operator AT&T could close its $85.4 billion acquisition of mass media company Time Warner despite the Justice Department’s objections.
“This decision is definitely a boon for companies looking to do vertical deals,” Daniel Hemli, an antitrust partner at Bracewell LLP in New York, told Bloomberg Law.
The wave has already begun. One day after the AT&T-Time Warner ruling, Comcast Inc. offered $65 billion to acquire 21st Century Fox Inc., challenging Disney Inc.'s previous $52.4 billion bid for Fox’s assets.
Hemli said he will be watching how closely the antitrust division stands by its strong preference for structural remedies, such as asset divestitures, rather than behavioral fixes. Makan Delrahim, DOJ’s assistant attorney general for the Antitrust Division, plans to stick with that preference even after the court loss, Bloomberg News reported.
But the government’s negotiations with merging companies could get tougher. “The decision may give more confidence to companies to resist to divestiture remedies or behavioral remedies they think are overly aggressive,” Mahr said.
In the AT&T-Time Warner case, the DOJ asked for the sale of either Turner Broadcasting, which includes channels such as CNN and HBO, or DirectTV, AT&T’s satellite service provider. AT&T and Time Warner rejected those suggestions, leading to a 20-month legal battle and resounding loss for the DOJ.
The defeat doesn’t mean DOJ merger enforcement is over, especially in horizontal cases, Hemli said. “It’s important to remember that both of the federal antitrust agencies, the DOJ and the Federal Trade Commission, have an excellent track record of successfully challenging horizontal mergers,” he said. “I don’t expect that to change.”
The DOJ could now turn more attention to horizontal mergers, particularly in the media space, said Michael Smith, information technology professor at Carnegie Mellon University, told Bloomberg Law. “If we end up with a Disney-Fox deal, that’s one where the DOJ will likely get involved.”
If Comcast winds up winning the Fox assets, it will likely make an argument similar to AT&T-Time Warner’s merger defense: that vertical integration is needed to stay competitive in the constantly changing media landscape, Smith said.
Mahr said the DOJ antitrust division under Delrahim isn’t generally opposed to vertical mergers, a position Delrahim also stressed several weeks ago at an event in New York.
Delrahim is “conscious of the fact that vertical mergers are generally efficiency enhancing and very rarely pose risks of substantial harm to competition,” Mahr said. The government will review deals, as it is required to do, but “it’s incorrect to assume that the DOJ will seek to challenge every vertical merger,” he said.
“The DOJ got nothing out of taking the merger to trial,” Smith said. Leon approved AT&T-Time Warner with no required remedies, which effectively puts the merged company in a better position than when it was negotiating with the DOJ last year. At that time, AT&T said it would be willing to abide by a consent decree similar to one that Comcast Corp. entered into to buy NBCUniversal, but the government spurned that suggestion. Comcast agreed in 2011 to conditions on how programming was licensed to online video distributors and a system for negotiating fair licensing terms with competitors.
Going forward, the DOJ may need to move toward accepting reasonable and meaningful behavioral remedies from companies to avoid litigation and ensure some sort of remedy if a preferred structural one isn’t accepted, Hemli said.
Behavioral remedies, such as court orders that require companies to offer services to rivals at a fair rate, are “difficult to effectively monitor or police,” Hemli said. “I’m somewhat sympathetic to Delrahim’s view” on behavioral remedies, he said.
The DOJ’s position may be weakened after the AT&T-Time Warner trial, but Mahr said “well-advised companies” will take the same merger approach as they did prior to the court ruling.
“They will continue where possible to structure transactions to avoid inviting long investigation and the delay that comes with it,” he said. “However, when those issues can’t be avoided, the government’s ability to credibly threaten to take a vertical merger to court has certainly been reduced substantially.”
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