Behind The Dispute Over The AT&T-TW Deal

Satellite Business News — An unprecedented two-day public back-and-forth between AT&T and the Department of Justice has cast serious doubt on when — or even if — the company’s planned acquisition of Time Warner will be closed.

And the Justice Department which approved AT&T’s purchase of DirecTV, albeit under a different administration, even spread the word that one way AT&T could obtain approval for buying Time Warner would be to sell DirecTV.

AT&T bought DirecTV in July 2015. The other way the Justice Department has apparently suggested AT&T could get the green light from the government is divesting Time Warner’s Turner Broadcasting unit, which houses the marquee programming channels—including HBO, CNN, TBS, and TNT—AT&T covets above all else.

CNN, in particular, became the focus of the public discussions. In an even more extraordinary public battle, AT&T and the government disputed whether the company had offered to sell CNN as part of a potential settlement.

AT&T Chairman Randall Stephenson took the unusual step of publicly and vehemently denying that notion. And by last night, reports were circulating that the Justice Department did not even believe that divesting CNN alone would be enough for AT&T to agree to in return for gaining the agency’s approval.

Stephenson all but appeared defiant yesterday when he said the company was ready to head to court with the Justice Department to prevent the government from blocking the transaction. At points, Stephenson almost seemed to be threatening the Justice Department regarding a potential court battle.

AT&T is “prepared to litigate [against the government] now,” he said in a televised appearance that was previously scheduled.

Opinion was divided late yesterday over whether Stephenson’s bravado that AT&T was set to go to court and thought it would win was a smart approach with the Justice Department.

AT&T has repeatedly said it expected the deal to be closed by the end next month. It told the SEC that in a filing as recently as a week ago.

All that changed Wednesday morning, when AT&T Chief Financial Officer John Stephens — the company’s chief cheerleader — stunned some when he said during a long-planned appearance at a financial conference that “the timing of the closing of the deal is now uncertain.” That followed, as reported, indications that

Justice Department staff had drafted a lawsuit to prevent AT&T and Time Warner from finalizing the transaction. Satellite Business News has reported that there are those on the permanent, professional staff of the Justice Department’s Anti-Trust Division who have serious concerns about the potential deal, and some who outright want to see it stopped. Stephens’ comments sparked a wild day of reports, claims, and counterclaims. Some consumer media outlets reported that AT&T has offered to sell CNN. Others said the Justice Department was demanding that AT&T sell all of Time Warner’s programming channels or DirecTV to avoid a legal fight with the agency.

Things got so bizarre that by late Wednesday, Stephenson, who is well-known for choosing his words and actions carefully, felt compelled to issue a statement denying AT&T would sell CNN. Stephenson repeated that several times during yesterday’s appearance, and said he had no choice but to issue the statement Wednesday because the claim AT&T would consider selling CNN was “just patently false.”

AT&T executives, Stephenson said, met with Anti-trust Division officials Monday, including Makan Delrahim, the newly installed head of the division. Stephenson said it was a “very productive meeting” and he was getting to know Delrahim.

Part of the purpose of the meeting was to try “to understand what the bid-ask is” regarding a possible settlement with the Justice Department, he said, employing a well-known Wall Street phrase that denotes how much someone wants to pay as opposed what someone is willing to pay.

“So now we continue the process and see if we can get to a negotiated settlement,” Stephenson said. AT&T, he added, was not asked during Monday’s meeting about divesting CNN nor did it offer to sell the news channel. “First and foremost, irrespective of what you read [Wednesday], I have never been told that the price of getting the deal done was selling CNN. Period.,” he said.

“Likewise, I have never offered to sell CNN…There is absolutely no intention that we would ever sell CNN. So take those two [ideas] off the table.” President Trump’s oft-stated disdain of CNN has been mentioned as a possible motivation for the administration blocking the deal.

Though he said numerous times AT&T has no plans to sell Time Warner’s programming channels, including CNN, Stephenson declined comment when asked the same question about DirecTV.

Though many doubt AT&T could sell DirecTV and sell retain the distribution rights it has obtained through DirecTV for its on-line “DirecTV Now” service, Stephenson citing the confidentially of the talks with the Justice Department only when talking about DirecTV left some wondering if AT&T might be willing to divest DirecTV in order to buy Time Warner.

AT&T and Time Warner recently revised the day that either could withdraw from the deal until April 22, Stephenson confirmed, which happens to be his birthday. But, he said.

AT&T hopes to resolve the entire matter before then. Stephenson said he was “surprised” that the Justice Department had not approved the deal, and might require the company to sell some assets rather than imposing conditions on its future practices. Comcast’s purchase of NBC, which was closed in January 2011, was a “more difficult” transaction than AT&T buying Time Warner, he said. AT&T’s proposal, he said, “is a classic vertical merger. There are no overlaps of competition.

There are no competitors being taken out of the market.” Stephenson said that “not one of these [similar deals has been] challenged in the courts and defeated in 40 years.” He pointed to that legal theory, along with the Comcast-NBC deal, and said, “We came into this with those two pieces of history and the law behind us.”

That is why, Stephenson said, AT&T is ready to battle it out in court with the government. AT&T, he said, has been mapping out its own plans for fighting the Justice Department in court “since the day we announced” the transaction.

“We have been working very diligently on a litigation strategy and a litigation plan. So, we are prepared [for court],” he said. AT&T would “obviously” prefer to reach a settlement with the Justice Department, he said, just in terms of the time, energy, and money such a court case would entail. Though it is “illogical for me to think that this deal doesn’t get approved,”

Stephenson said at some point AT&T will have to ask itself is a “negotiated settlement a better or worse outcome than we litigate?” If it has to head to court, Stephenson said AT&T would ask for an “expedited hearing” in order to determine the outcome before April.

AT&T does not view the traditional players in the media business as its primary competitors, Stephenson said. It “borders on comical” to claim that combining AT&T and Time Warner would pose a threat to companies like Google, Facebook, Amazon, and Netflix, he said.

Technology companies like those have “built incredibly strong positions and impressive positions in advertising” and by buying Time Warner, he said, “we hope it will give us a shot at competing with them.”

Stephenson dismissed those who argue that a combined AT&T-Time Warner would be too big and exert too much influence in the marketplace. “Concentration of power is the least problem in this industry,” he said.

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