What: AT&T obtained approval from the Department of Justice to acquire Time Warner for US $85 million after a six-week trial.
Why it matters: This was the first time in four decades that the government directly intervened in a vertical merger, gaining the attention of corporations who feared a change in the course of the history of the media industry.

One of the biggest M&A decisions happened yesterday. A federal district court has allowed AT&T to acquire Time Warner, making the Trump administration’s Justice Department the loser in a high-profile legal case that will be taught in law schools for years to come.

On Tuesday June 12, in a D.C. courtroom packed with lawyers, journalists and investors, Judge Richard Leon ruled in favor of a deal that had been pending since October 2016 to go through with no conditions after years of negotiation, political uncertainty, and a six-week trial earlier this year. He declared: “The court has now spoken and the defendants have won.”

It’s the first time since 1970 that the Justice Department has sued to block a “vertical” merger, that is, the combination of two companies that do not directly compete with one another. Time Warner is a content producer while AT&T is a content distributor via its satellite services and mobile phone business.

The outcome was of interest not only to followers of AT&T and Time Warner; at stake was not only the deal that would bring together the telecom and content giants, but also a precedent for deals of a similar scale. It is a landmark for the entire industry, as companies like Disney, Fox, and Comcast waited to see how the case turned out before moving ahead with their own mega deals, and it signaled an unusual tack under president Donald Trump who says he promotes business and opposes regulation. As expected, barely 24 hours after the ruling, Comcast has announced a new bid for assets 21 Century Fox has agreed to sell to Disney. With US $35 a share in cash, the company is outbidding Disney by 19%.

The DOJ sued last year to block the merger based on the argument that prices for consumers would go up too much if the companies were allowed to merge, as AT&T could charge rival distributors more for Time Warner content. AT&T says they expect costs to consumers to go down since the point of owning content is to get widespread distribution, which brings in affiliate fees and advertising revenue and they point out that even if the government’s math is correct it would be a matter of cents more per subscriber per month.

Properties AT&T Will Own in the U.S. After Acquiring Time Warner

In the U.S, AT&T also has an ad sales unit with a particularly strong emphasis on addressable advertising. In time, Time Warner’s myriad of content channels can be offered to advertisers with additional targeting capabilities through AT&T’s detailed information on more than 156 million cell-phone subscribers in the U.S. This is of particular importance in the Hispanic market, which heavily over-indexes in cell phone usage. The following infographic (Time Warner on the top left corner) shows the major companies owning TV and entertainment properties:

[Source: Gizmodo]

A closer look at the list of companies, however, allows us to come up with a detailed list of properties that AT&T will use to survive in the increasingly competitive media landscape:

  • HBO and Cinemax, as part of Home Box Office Inc.
  • HBO Latino
  • TBS, truTV, TNT, Studio T, and TCM, as part of Turner Entertainment Networks
  • Adult Swim and Cartoon Network, as part of the TBS, Inc. Animation, Young Adults & Kids Media (AYAKM) division
  • CNN and HLN, as part of CNN News Group,
  • CNN en Español
  • The websites Super Deluxe, Beme Inc., and CallToons
  • DC Entertainment; DC Films, including all of the “Batman” movies
  • Turner Broadcasting International, Turner Sports, including the website Bleacher Report and the rights to March Madness and NBA playoffs
  • The CW (50%)
  • Warner Bros. Animation
  • Hanna-Barbera Cartoons
  • HTV
  • Tooncast
  • Fandango Media (30%)
  • Warner Bros. Consumer Products, Warner Bros. Digital Networks, Warner Bros. Theatre Ventures, Warner Bros. Pictures International, Warner Bros. Museum, Warner Bros. Studios, Burbank, Warner Bros. Studios, Leavesden, Warner Bros. Studio Tours, Warner Bros. Pictures, Warner Animation Group, Warner Bros. Family Entertainment
  • NonStop Television
  • New Line Cinema
  • Turner Entertainment Co.
  • WaterTower Music
  • Castle Rock Entertainment
  • The Wolper Organization
  • HOOQ
  • Blue Ribbon Content
  • Warner Bros. Television, Warner Horizon Television, Warner Bros. Television Distribution, Warner Bros. Home Entertainment, Warner Bros. Interactive Entertainment
  • Telepictures
  • Alloy Entertainment
  • eleveneleven

In addition, AT&T was already in control of the following:

  • Ameritech, Ameritech Cellular, Ameritech Interactive Media Services, Ameritech Publishing
  • AT&T Communications (2017), AT&T International, AT&T Originals, AT&T Alascom, AT&T Business Internet, AT&T CallVantage, AT&T Computer Systems, AT&T FSM Library, AT&T GoPhone, AT&T Information Systems, AT&T Intellectual Property, AT&T Labs, AT&T Mobility, AT&T Technologies, AT&T Wireless Services
  • BellSouth, BellSouth Advertising & Publishing, BellSouth Long Distance, BellSouth Mobility DCS, BellSouth Telecommunications
  • Centennial Communications
  • CenturyTel of the Midwest-Kendall
  • Cricket Wireless
  • Crunchyroll
  • DirecTV
  • Fullscreen (company)
  • Illinois Bell, Indiana Bell, International Bell Telephone Company, Michigan Bell, Nevada Bell, Ohio Bell, Wisconsin Bell
  • Otter Media
  • Pacific Bell, Pacific Bell Directory, Pacific Bell Wireless
  • QLT Consumer Lease Services
  • Rooster Teeth
  • SBC Long Distance, SBC Telecom
  • Southwestern Bell, Southwestern Bell Internet Services, Southwestern Bell Mobile Systems, Southwestern Bell Yellow Pages
  • Unix System Laboratories
  • AT&T U-verse
  • Yellowpages.com
  • YP Holdings

AT&T Could Win Big in Latin Markets After Acquiring Time Warner

AT&T’s big win in the U.S. could be paralleled in Latin America thanks to the popularity of properties owned both by AT&T and Time Warner. According to Market Realist, HBO and Cinemax generate a majority of their revenues in international markets through subscription to its OTT (over-the-top) services. In fiscal 2Q16, HBO’s revenues rose by double digits, indicating its popularity. After success in Mexico, the company launched HBO Now in Argentina, Spain, and Brazil.

AT&T 3Q16 company presentation

AT&T in Latin America

AT&T has a significant footprint in Latin America since it acquired DirecTV. Time Warner’s acquisition by AT&T would result in combining Time Warner’s premium content with DirecTV’s pay-TV operations in Latin American markets, which could boost its pay-TV subscriber base. However, AT&T planned to launch an IPO for DirecTV Latin America in March. Even though the IPO was suspended in April, the company might reconsider it in order to pay down some of the debt it’ll acquire after the Time Warner acquisition.

With the acquisition, AT&T will have access to Time Warner-owned properties centered on Latin American audiences:

  • HBO Latin America
  • HBO Brazil
  • Cinemax Latin America
  • Turner Broadcasting System Latin America
  • Chilevisión
  • TNT Latin America
  • I.Sat
  • Warner Bros Pictures International (Spain, Argentina, Brazil, Mexico)

In addition, AT&T owns Nextel, Iusacell, and Unefón in Mexico, as well as Univel in Argentina.

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