Pedestrians walk past an AT&T Inc. store in the Times Square area of New York. (Photographer: Michael Nagle/Bloomberg)

U.S. Says Judge in AT&T Merger Ruling Ignored ‘Common Sense’

(Bloomberg) -- U.S. antitrust officials outlined their arguments for why a judge’s ruling approving AT&T Inc.’s takeover of Time Warner Inc. should be reversed, saying the court ignored "fundamental principles of economics and common sense."

The Justice Department said the lower court decision allowing the merger was "clearly erroneous" in part because the judge ignored the core argument that Time Warner would have added bargaining power over rival pay-TV distributors that pay for its programming.

"The district court erroneously concluded that the merger will not give Time Warner any increased bargaining leverage," the government said in papers filed Monday in the U.S. Court of Appeals in Washington. "The reasons the district court gave for finding zero increase in leverage are implausible and internally inconsistent."

The outcome of the appeal carries high stakes not just for the Time Warner deal, but other mergers of companies that operate in a different parts of a supply chain. The case has been closely watched because it’s the first time in decades a court has decided on a government challenge to such a deal.

Transaction Closed

AT&T completed the Time Warner transaction on June 14, two days after U.S. District Judge Richard Leon’s ruling allowing the takeover to proceed. The Justice Department had agreed not to seek an emergency court order preventing the deal from closing after AT&T promised to operate Time Warner’s Turner Broadcasting as a separate business unit until 2019. That would make it easier for AT&T to sell Turner if the government ultimately prevails.

“Appeals aren’t ‘do-overs,’" AT&T General Counsel David McAtee said in a statement. "After a long trial, Judge Leon weighed the evidence and rendered a comprehensive 172-page decision that systematically exposed each of the many holes in the government’s case. There is nothing in DOJ’s brief today that should disturb that decision.”

Should the Justice Department win at the appeals court level, it would undo a stinging rebuke for the government and vindicate the decision by the head of the antitrust division, Makan Delrahim, to challenge the Time Warner takeover. A loss for the government would set a binding precedent that could restrict future enforcement while a win would enhance the government’s ability to police deals.

The Justice Department pointed to the ramifications for the appeal in its filing, saying the outcome "will shape the future of the media and telecommunications industries for years to come" by setting the guidelines for deciding whether content companies and distributors can combine.

In his decision, Leon rejected the government’s argument that acquiring Time Warner will give AT&T the power to raise prices that cable and satellite-TV companies pay for Time Warner content such as CNN, which in turn will lead to higher bills for consumers. AT&T countered that the government’s economic model was riddled with flaws and that the deal will enable AT&T and Time Warner to more effectively compete against companies such as Netflix Inc.

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