• Judge’s ruling expected to spur merger wave across industries
• Comcast said poised to top Disney bid for Fox assets Wednesday
AT&T Inc.’s sweeping court victory allowing its takeover of Time Warner Inc. delivers a sharp setback to the Justice Department’s new approach to policing mergers under President Donald Trump and promises to spark a merger wave across industries.
The Justice Department’s lawsuit, led by antitrust chief Makan Delrahim, came against a backdrop of criticism that decades of lax merger enforcement by the government has led to increased concentration across industries. By bringing the Time Warner case, Delrahim took a tougher stand, breaking with past practice of approving vertical deals after placing conditions on how companies operate. Instead, Delrahim demanded the companies sell business units — so-called structural remedies — to fix competition problems.
His defeat makes it unlikely he can continue to deliver on that strategy, said Chris Sagers, an antitrust law professor at Cleveland-Marshall College of Law.
“This is probably the end of meaningful vertical enforcement for a good long time,” Sagers said.
The decision doesn’t necessarily spell the end for vertical enforcement because it’s so dependent on the specific facts raised in the Time Warner takeover, said Michael Carrier, a law professor at Rutgers Law School. Still, with the judge finding so many flaws in the government’s case, it’s clear the Justice Department will need to provide more evidence to prove its case next time.
“It really is an across the board rejection of the DOJ’s case,” Carrier said. “They need air-tight support for their economic theory of harm.”
The impact of Leon’s decision was reflected instantly in media stocks. Fox, which already has an agreement to sell assets to Walt Disney Co., gained as much as 6.1 percent in late trading as the AT&T win fueled expectations that a competing Comcast offer would face lower regulatory hurdles.
Comcast is set to make a bid that’s higher than what it offered for the assets late last year, people with knowledge of the matter said last month. Comcast may be able to use the AT&T ruling to bolster its bid, because like the Time Warner deal, an acquisition of Fox by the cable company would unite a programmer with a distributor.
Lions Gate Entertainment Corp. gained as much as 9.5 percent, while Discovery Inc. rose as much as 5.1 percent.
Shares of companies that are targets in vertical takeovers also rose on the decision. Express Scripts Holding Co., the pharmacy benefit manager that has a deal to be acquired by health insurer Cigna Corp., gained 5.6 percent in late trading. Health insurer Aetna Inc., which has agreed to sell itself to CVS Health Corp., rose 3.8 percent.
The ruling “confirms what the antitrust community has known for the past 30, 40 years — that vertical combinations like this are more likely to deliver pro-competitive efficiencies than they are likely to harm competition,” said Eric Mahr, a partner at Freshfields Bruckhaus Deringer and a former Justice Department lawyer.
Senator Amy Klobuchar of Minnesota, the top Democrat on the Judiciary Committee’s antitrust panel, called for the Justice Department to appeal Leon’s ruling.
“Allowing this merger to proceed raises serious concerns for consumers and the future of American media,” Klobuchar said. It “also sends a troubling signal to others that it’s open season for vertical mergers that could allow a company to raise the cost of essential products and services that its rivals need to compete, leading to higher costs for consumers and less innovation.”
The Justice Department may be able to reverse Leon’s decision on appeal only if it can point to errors made by the judge, said Henry Su, a lawyer at Constantine Cannon in Washington.
An appeals court is “not going to second-guess findings of fact that Judge Leon made,” Su said.