A federal judge is expected to make a decision on the government’s effort to stop the AT&T’s attempted merger with Time Warner this week; a decision which could have widespread implications.
If the judge’s opinion favors the merger, then not only would AT&T be able to merge with Time Warner. A whole slew of companies would use the precedent to go ahead with mergers and acquisitions, while a decision favoring the government would mean executives would have to scale back their aspirations, according to the New York Times.
“It could have a collateral effect on every other transaction,” said Blair Levin, an adviser to New Street Research and a former chief of staff at the Federal Communications Commission.
Corporations like Disney are watching Judge Richard Leon’s ruling on the Department of Justice lawsuit to block AT&T Inc.’s purchase of Time Warner Inc. Disney wants 21st Century Fox and could get into a bidding war with Comcast depending on the ruling. The ruling will have implications for other major proposed mergers and acquisitions like CVS with Aetna and T-Mobile with Sprint.
The Justice Department’s filing of the lawsuit came as a surprise to investors and experts, with some suggesting a political motivation. The New York Times explained that “deals between such companies, called vertical mergers, typically pass regulatory scrutiny with minimal roadblocks.” Because one company creates content and the other distributes it, they don’t compete with each other.
Fortune reports that the government argued that the merger would force consumer costs to rise, a claim denied by AT&T. Fortune goes on to report that the company said the antitrust laws are antiquated and that even if the cost savings projections were wrong, consumer costs would rise by only a few cents a month.
Analysts think AT&T has the stronger argument because of similar cases that got the green light, according to the New York Times. The New York Times reports that the analysts said the outcome may not be so clear though because of certain restrictions and conditions that could force companies looking to consolidate to restructure their proposals. Anything is possible in the court of law though, despite past precedents and expert analysis.
Thomson Reuters reports about $816 billion worth of transactions in the United States were announced this year through May, a 71 percent increase from last year. The New York Times said that “companies need growth, and buying other companies remains one of the fastest and most effective ways to achieve it.” The article went on to say borrowing a lot of money for deal making is still cheap by historical standards.