AT&T Inc. (T) won approval from a U.S. court on Tuesday to buy Time Warner Inc. (TWX) in one of the largest antitrust cases in decades.
The high-stakes case, which was decided by Richard Leon, a judge appointed by President George W. Bush, has been closely watched by the telecommunications, media, and tech industries for its potential effect on the future of other blockbuster deals.
“This opens the floodgates for consolidation among the largest entertainment and transmission companies,” said Gene Kimmelman, former chief counsel for the U.S. Department of Justice’s antitrust division.
The Justice Department filed suit to block the $85.4 billion acquisition deal last November, claiming such a deal would hurt consumers and competition. At the time, Makan Delrahim, chief of the Justice Department’s antitrust division, said: “This merger would greatly harm American consumers. It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy.”
AT&T general counsel David McAtee said the company was “pleased” with the court decision and looked forward to “closing the merger on or before June 20 so we can begin to give consumers video entertainment that is more affordable, mobile, and innovative.”
Tuesday’s ruling doesn’t only give the green light to AT&T’s acquisition of Time Warner which owns HBO, CNN and the Warner Bros. movie and television studios. Other companies with large deals in the making, such as CVS (CVS) and its bid for Aetna (AET) and T-Mobile (TMUS) and its proposed merger with Sprint (S) can now point to Tuesday’s ruling to support their cases with regulators.
The court decision will also open the door to a bidding war between Comcast Corp. (CMCSA) and Walt Disney Co. (DIS) for some of 21st Century Fox Inc.’s (FOXA) most coveted assets in a deal that would be a similar vertical merging of content and distribution.
In December, Fox agreed to sell its entertainment assets to Walt Disney Co. for $52.4 billion in stock. The assets in question include the Twentieth Century Fox TV and film studios, cable networks including FX and National Geographic Channel, Star India, a 39% stake in Sky PLC and majority control of streaming service Hulu. However, cable giant and NBCUniversal owner Comcast Corp. has since confirmed it is preparing to submit a cash bid that will top Disney’s all-stock offer.
21st Century Fox Inc. shareholders plan to vote July 10 on the company’s proposed sale of some of its highly-prized assets to Walt Disney Co., though Fox said the meeting could be postponed if Comcast submits a competing bid.
Fox previously rejected an offer from Comcast for its entertainment assets due to antitrust concerns. That offer was 16% more on a per-share basis than what Walt Disney agreed to pay. Tuesday’s ruling may relieve Fox’s concerns and leave the field clear for a bidding war between the two companies.
Fox and News Corp, publisher of MarketWatch and The Wall Street Journal, share common ownership.
This is a rare acquisition opportunity for Disney and Comcast. Streaming is a key part of Disney’s long-term strategy. The company paid nearly $2.6 billion for a majority stake in streaming-technology company BamTech last year and in April launched a sports streaming service, ESPN+. Disney is also planning to end its distribution deal with Netflix (NFLX) in favor of launching its own subscription service in 2019.
When it comes to streaming content, “Netflix is still miles ahead,” said Daniel Ives, the head of technology research at GBH Insights. Acquiring the Fox assets, which include such big-name franchises as “X-Men” and “Ice Age,” would “take Disney from the 50- to the 20-yard line,” he said. Acquiring the Fox assets would add valuable movies and shows to Disney’s future subscription service, and would give Disney a majority interest in Hulu.
Comcast is also making inroads in streaming, joining with Netflix in recent years. After a failed attempt to create its own streaming-video service in 2012, Comcast reached an agreement in 2016 with the streaming juggernaut to allow Netflix subscribers access to Netflix content on Comcast’s X1 cable boxes. And in April, the two companies announced that Comcast would begin bundling Netflix with its plans for cable TV, phone and internet, allowing customers to pay for both Netflix and Comcast services on one bill.
Despite these moves, Comcast still faces a saturated pay-TV market in the U.S. Acquiring Fox’s international assets would create opportunities in parts of the world where cable TV still has ample room to grow.
Time Warner shares were up 3.9% in pre-market trade Wednesday. AT&T shares slumped 4.0%, while 21st Century Fox shares were up 8.0%.
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