What's going on?
The US government’s Department of Justice (DoJ) is suing to block AT&T from taking over Time Warner – a deal that was announced more than a year ago. The DoJ says it hands too much power to one company… but AT&T is saying “see you in court!”
What does this mean?
AT&T, a major provider of mobile phone services which also owns satellite provider DirecTV, wants to buy content producer Time Warner (owner of HBO and TV stations like CNN and TNT). The DoJ says a combined firm could muscle out emerging streaming services like Sling TV, ultimately pushing up the price of viewing content for the average American.
AT&T vehemently disagrees: in its view, this deal is about combining a media company (Time Warner) with a telecom company (AT&T), and so it says the DoJ has no business blocking it on competition grounds.
Why should I care?
For markets: Both AT&T and Time Warner stocks have suffered.
Time Warner’s stock has fallen about 10% over the past six weeks, as it became increasingly obvious that the DoJ would kick up a fuss (although it was up on Tuesday, perhaps suggesting that investors think the DoJ has a weak case). AT&T’s stock price has also weakened over the same period, suggesting that investors think the Time Warner deal is a good idea – and the company would be in a worse position if it were successfully blocked.
The bigger picture: It’s tough to take a view on an industry in such flux.
The last time a “vertical” merger (i.e. between companies from different industries) was successfully blocked by the US government, Richard Nixon was president (tweet this). But in a world of streaming platforms, it’s harder to distinguish between a media company and a telecommunications platform provider. The two are (arguably) converging, which is likely why AT&T wanted to buy Time Warner in the first place – although it’ll be difficult for the DoJ to argue that the potential future industry dynamic is sufficient reason to block a takeover today.