What to Watch in AT&T-Time Warner Ruling: Decision Day Guide

(Bloomberg) -- AT&T Inc. will learn Tuesday afternoon whether its long-delayed $85 billion deal to buy Time Warner Inc. can move forward when U.S. District Judge Richard Leon rules on the Justice Department’s lawsuit to block the takeover.

Leon is scheduled to announce his decision starting at 4 p.m. New York time in a D.C. courtroom that’ll be packed with lawyers, journalists and investors, many of whom paid "line-sitters" to camp out on the sidewalk overnight to ensure they get in. Leon will likely prohibit anyone from leaving the courtroom until he’s done reading, all but ensuring a mad dash of spectators seeking to report the result first. Adding to the commotion, a parade honoring the Washington Capitals’ Stanley Cup championship is scheduled to end about 3 p.m. just blocks from the courthouse.

The outcome is of great interest to more than followers of AT&T and Time Warner. It’s the first major deal to face opposition from the Justice Department in the Donald Trump era, making its fate of utmost importance to the M&A community. Leon, who has been on the bench since 2002, has a reputation for courtroom drama and being unpredictable. And the case has been infused since the beginning with political undertones, as Trump routinely criticizes coverage by Time Warner’s CNN.

Here are some of the key things to be aware of:

Three Possible Outcomes

Leon is expected to deliver remarks from the bench before his final ruling appears on the court’s docket. He may read extensively from the legal reasoning that went into his decision, so beware of premature conclusions based on his review of each side’s case.

He can rule in AT&T’s favor and deny the government’s request for an injunction, side with the Justice Department and block the deal on antitrust grounds, or rule it illegal, but allow it to go forward by meeting conditions aimed at protecting competing pay-TV companies that want access to Time Warner programming.

The government has suggested an alternative to blocking the deal: requiring AT&T to sell its DirecTV unit or preventing it from acquiring Time Warner’s Turner Broadcasting.

At an event in Washington Tuesday, the Justice Department’s antitrust chief, Makan Delrahim, said the case is “potentially historic.” He added that structural remedies will be a core part of the agency’s antitrust approach no matter what happens in the AT&T-Time Warner case.


Market Reaction

Traders will be poised to act, even with the hearing beginning as the market closes. Investors have become more confident AT&T will win, based on the difference between the offer price of $102.87 and Time Warner’s share price. The spread is smaller than when the lawsuit was filed in November.

  • Read more about key market data on the stocks

Impact on M&A

The decision will have wide implications for future deals because there has been so little judicial guidance on antitrust issues in deals like the Time Warner takeover, which unites two companies that operate in different parts of a supply chain rather than direct competitors. Before this suit, it was practically unheard of for the Justice Department to go to court to stop so-called vertical deals.

Key Witnesses: Who Was Most Credible?

A central component of the trial was competing economic theories. The Justice Department offered Professor Carl Shapiro of the University of California at Berkeley, whose report formed the backbone of the Justice Department’s suit. AT&T countered with University of Chicago Professor Dennis Carlton who was called to the witness stands to poke holes in Shapiro’s arguments. AT&T Chief Executive Officer Randall Stephenson, a serial acquirer with 33 takeovers completed in his 11-year run at the helm, got to pitch for his career capper.

  • Read more of the back-and-forth at the trial:

Cox Executive Warns of ’Ugly’ Outcome If AT&T Merger Is Approved
AT&T CEO Says He Knew ‘Head Snapper’ Status of Time Warner Deal
AT&T, U.S. Take Last Shots Over Time Warner as Judge Weighs Deal

Politics

Trump’s feud with Time Warner’s CNN raised questions that his administration may have influenced the Justice Department’s decision to challenge deal. But Leon denied AT&T’s request to disclose any communications between the White House and Attorney General Jeff Sessions about the merger and between Sessions and the department’s antitrust division, keeping such speculation a mystery.

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