AT&T and Time Warner Merger Could Be Stopped
The U.S. Department of Justice is suing AT&T Inc. (NYSE:T) in order to block its takeover of Time Warner Inc. (NYSE:TWX).
The total value of the deal is $85.0 billion, and it has been in the works for more than a year. Back in October 2016, AT&T announced that it was taking over Time Warner and that it was expecting the deal to close in a year.
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AT&T decided to pursue this deal in order to cut its business costs, reduce its headcount, and increase its cash flow. With this in mind, AT&T sought out Time Warner because it owns very powerful brands, such as Warner Bros., CNN, DC Comics, and part of Hulu, LLC. Therefore, through the acquisition, AT&T would be gaining millions of customers.
Reading the paragraph above, it could seem that the merger would be great for America as a whole, not just the shareholders of the two companies and the investment bankers who would be closing the deal. With so many positive aspects, why would President Donald Trump and his administration sue AT&T and block this deal? Is Trump going against his word on looking out for the best interests of America? These questions and more will be answered below.
Why Is There a Holdup with the AT&T and Time Warner Deal?
Since the merger between AT&T and Time Warner is very large, it needs the approval of Trump and his team. This is to ensure that there is not a monopoly in place after the merger is complete. A monopoly situation would give too much power to the huge, combined company and no benefits to the consumer.
This is the first reason for the holdup in the merger process. Since AT&T would own a large media library, the company could easily increase its prices and have a lot of influence over the consumer. The second reason for the holdup is Trump’s personal views about the assets involved in the deal.
Being president of the United States is known to be the most difficult and powerful position in the world. When a president makes a decision, it is judged on the basis of whether it is for the betterment of America as a whole. With Trump as president, however, things are a bit different; he takes things very personally. For example, if someone speaks out against Trump or his team, he tends to attack them in public speeches or by using his Twitter account.
There are hundreds of people who Trump has publicly criticized. Just a few of those names are previous presidential candidate Hillary Clinton, Republican Senator Bob Corker, Ken Frazier of Merck & Co., Inc. (NYSE:MRK), National Basketball Association (NBA) superstar Stephen Curry, the whole National Football League (NFL), and the list goes on. One more big target is the media network CNN, which—as mentioned above—is owned by Time Warner.
Trump dislikes the network because they tend to not agree with him, and they portray him in a bad light to the public. Due to this, Trump is attempting to do what he can in his power to block the deal, so AT&T would not obtain the CNN assets. Since Trump cannot control what is said by the network, this merger is being scrutinized perhaps more than usual for a deal such as this.
An example of CNN’s reporting on Trump has been its coverage of the LaVar Ball vs. Donald Trump feud.
Trump credits himself with releasing Ball’s son LiAngelo and two other UCLA basketball players from potential jail time in China for shoplifting. The players held a press conference and thanked the president for his help, however Trump wants even more recognition from the family. Since then, LaVar Ball appeared on CNN stating that the president should spend his time on larger issues instead of his son and the other basketball players..
Meanwhile, Trump has continued to attack CNN and the Ball family.
What Are the Options for AT&T?
If the deal with Time Warner is blocked by the federal administration, AT&T has said it plans to go to court over the matter. AT&T is focusing on its business and investors alike, not on the president’s feud with CNN. The court’s ruling on the deal would impact the company even after Trump leaves the White House. By AT&T taking the matter to court, it would give less power to Trump and more discretionary power to the court
Another option that has been in the rumor mill is the possibility of divesting the CNN assets. This would mean the merger could close as planned, but that AT&T would have to sell off CNN. CNN is an asset that generates revenue worldwide and has a strong powerful brand. AT&T likes the CNN assets, and it would not want to make a deal to satisfy just one person (Trump) when there is the long-term perspective to consider.
What Happens if the Deal Does Not Close?
AT&T, as the company attempting to take over Time Warner, takes full liability if the deal does not close. If the merger does not go ahead as planned, AT&T would have to pay $500.0 million to Time Warner, which was agreed to when the terms of the deal were signed off on by both sides. If another bidder came in and topped AT&T’s bid, however, Time Warner would have to pay $1.7 billion to AT&T. (Source: “Why AT&T Isn’t Sweating the Breakup Fee in Its Time Warner Deal,” The New York Times, October 24, 2016.)
With the recent developments in mind, it is more likely that AT&T ends up paying the fee if Trump or the Department of Justice does not allow the deal to close.
Make America Great Again?
This is one of Trump’s first true tests of whether he is a pro-business president. If the deal closes with no hiccups, then all this was just noise. However, if the Trump administration blocks the deal, it means that there could be more complications regarding other future business deals that require the White House’s okay.
All this drama is not great for companies that have their headquarters around the world but are considering expanding into the U.S. market or purchasing an American company. These types of events add barriers and headaches to business dealings.
