The Justice Department’s unsuccessful bid to kill AT&T Inc.'s acquisition of Time Warner Inc. doesn’t mean antitrust regulators will shy away from scrutiny of similar deals, antitrust attorneys say.
The facts of AT&T’s $85 billion “vertical” deal — in which a company buys a supplier — are so unique that they won’t dramatically alter DOJ policy on when to review other mergers, attorneys said. The DOJ, under its current antitrust chief Makan Delrahim, also won’t hesitate to order asset sales to approve vertical mergers that might pose competition concerns, they said.
The DOJ’s steadfast course in vertical deal reviews, post AT&T, could signal to companies eyeing acquisitions of suppliers that their path to regulatory clearance is hardly free of obstacles.
AT&T completed the deal in June after a trial judge nixed the DOJ’s attempt to block it. AT&T’s victory fueled talks that the DOJ would relent in its reviews of such deals, and return to focusing mostly on competition-eliminating “horizontal” mergers that involve a company buying a rival.
Such a conclusion is premature, Eric Meiring, partner at Winston & Strawn LLP and a former acting chief in the DOJ’s antitrust division, told Bloomberg Law. “To broadly take from this [AT&T-Time Warner] that the DOJ is less likely to bring vertical cases is not true,” he said.
The DOJ is appealing the case, which was its first lawsuit to block a vertical merger since 1977. Few expect the government to win. A decision is expected before Feb. 28.
The DOJ and companies pursuing vertical acquisitions likely will not view AT&T’s deal as a precedent or cautionary tale because its facts were unique, attorneys said.
“I find it surprising that because of the outcome of one case that was very fact specific that they [DOJ regulators] are going to change their approach towards antitrust enforcement,” Ross Lieberman, senior vice president of government affairs at the American Cable Association, said at the Capitol Forum’s recent conference on technology competition.
Regulators were concerned that AT&T, which offers pay-TV service, could gain negotiating leverage once it gains Time Warner’s attractive content, like CNN and HBO. The leverage could force rival cable operators, like Comcast Corp., to pay higher prices for its channels, the DOJ argued. Such negotiations could lead to programming blackouts and rising cable costs, the DOJ said.
The government’s theory of harm is so narrowly tailored to the facts that, even with a loss at the appellate level, the case won’t be indicative of vertical mergers as a whole, Meiring said. “I just don’t think it is going to have major long term implications on whether the DOJ brings another vertical case or becomes gun shy,” he said.
DOJ’s Other Tools
The DOJ has other tools before initiating lawsuits to enforce anti-competitive vertical deals.
Government regulators can order acquisition-minded companies to adopt structural remedies like selling off assets. It can also force companies to sign consent decrees to refrain from certain behavior, such as Comcast Corp.'s behavioral condition agreement to acquire NBC Universal in 2011.
Delrahim underscored the point at a recent House hearing when he addressed why DOJ lawsuits in vertical deals were so infrequent. “Just because it’s been 40 years since one was litigated because the parties didn’t settle or agree to divestitures or other remedies here doesn’t mean that the division didn’t enforce,” he said.
Delrahim’s preference would be to order structural fixes for possibly anticompetitive mergers. It’s a view he’s indicated multiple times since taking the lead of the antitrust division. Such remedies are like “a religious belief,” for Delrahim, Hal Singer, principal at Economists Incorporated, said at the Capitol Forum event. “I don’t expect Makan is going to come around on this,” he said.
The DOJ brought the lawsuit against AT&T after the company refused to sell some Time Warner assets.
Since the AT&T—Time Warner merger closed, the DOJ has approved five other deals that required asset divestitures, including CVS Health Corp.'s $68 billion vertical acquisition of Aetna Inc.
“In any given year, there are only a handful of vertical mergers that pose sufficient competitive concerns,” Meiring said. “I think in most of those cases, the risk of litigation for DOJ and parties is so high that they can find some negotiated settlements that allow for vertical integration.”