AT&T's Time Warner Takeover at Crossroads as Judge Weighs Ruling

(Bloomberg) -- In the end, the fate of AT&T Inc.’s $85 billion merger with Time Warner Inc. will come down to he said versus he said.

Lawyers for AT&T and the Justice Department clashed one last time at the close of a six-week trial over the proposed combination, a deal the government aims to stop. The judge overseeing the antitrust case said Monday he’ll rule in a month and a half whether to block the deal.

“This whole case is a house of cards,” Daniel Petrocelli, the lead attorney for AT&T and Time Warner, said in closing arguments Monday before U.S. District Judge Richard Leon in Washington. At about the same time, outside a conference in Los Angeles, Makan Delrahim, who leads the Justice Department’s antitrust division and decided to file the lawsuit last year, sounded equally confident.

“I wouldn’t bring a case I didn’t think we would win,” he said.

The stakes are high for both sides. A win for AT&T would seal Chief Executive Officer Randall Stephenson’s vision to feed movies, TV and news to his 119 million mobile, internet and video customers. A Justice Department victory would validate Delrahim’s surprising decision to challenge the deal. It could also make it tougher for other companies to win approval for mergers that don’t combine direct competitors, like CVS Health Corp.’s pending acquisition of health insurer Aetna Inc.

After each side presented its statements, Leon acknowledged the need to rule by the companies’ merger deadline of June 21, while leaving time for an appeal. He said he’ll announce his decision at a June 12 hearing. He asked few questions during the closing statements.

CEOs Watch

Monday’s proceedings saw the return to Washington of both companies’ CEOs, who joined other executives and lawyers in the courthouse cafeteria before the hearing to socialize and discuss the case. The group included Time Warner CEO Jeff Bewkes, AT&T’s Stephenson and AT&T executive John Stankey, who leads the merger integration team and will oversee Time Warner if the deal goes through. All three men testified at the trial and watched Petrocelli make his final pitch.

The judge will be focusing on reams of opposing data and witness testimony, including reports from dueling economists hired as experts by the government and the companies. The academics took turns criticizing each other’s data and theories, and were grilled during cross-examinations.

The U.S. argues the deal would give AT&T, which owns DirecTV and is the biggest pay-TV company in the U.S., bargaining leverage over rival cable and satellite companies that want Time Warner programming like CNN, TBS and TNT. That would enable AT&T to increase prices for content, costing consumers more than $400 million a year, according to the government’s estimate.

Panicked Rivals

Justice Department lawyer Craig Conrath described what the government viewed as an industry panicked over the possible merger, highlighting the testimony of rival pay-TV executives who feared they’d face higher prices for content or subscriber losses to DirecTV if they didn’t agree to pay. Conrath quoted testimony by RCN Corp. Chief Executive Officer Jim Holanda, who said the deal is “lose-lose for us, win-win for them.”

While Petrocelli attacked the government’s predicted price increase as unreliable, Conrath argued the government doesn’t have to project price increases precisely, just show that there is a “reasonable probability” of consumer harm resulting from the deal.

AT&T and Time Warner claim the deal is needed to compete with companies like Netflix Inc. and that consumers will actually see lower prices as a result of cost-savings from combining the two companies.

Major Mistakes

In his closing statement, Petrocelli sought to highlight what he said were major mistakes in the data used by the government’s economic expert, Professor Carl Shapiro of the University of California at Berkeley, whose report forms the backbone of the Justice Department’s lawsuit to block the merger.

Petrocelli told Leon that after correcting all of Shapiro’s alleged mistakes, the deal would lead to a price decrease of 54 cents per subscriber per month, or savings of about $500 million a year. Even under the government’s flawed analysis, Petrocelli said, the merger would result in a price increase of 13 cents per subscriber per month, which he called “statistically indistinguishable from zero.”

“This trial has exposed serious questions about the credibility of the government’s entire presentation,” Petrocelli said.

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