AT&T Inc won court approval on Tuesday to buy Time Warner Inc for $85 billion, rebuffing an attempt by U.S. President Donald Trump’s administration to block the deal and likely setting off a wave of corporate mergers.
The merger was approved without conditions and is seen as a turning point for a media industry that has been upended by companies like Netflix Inc and Google which produce content and sell it online directly to consumers, without requiring a pricey cable subscription. Distributors including cable, satellite and wireless carriers all see buying content companies as a way to add revenue.
The decision comes despite criticism from Trump, a frequent detractor of Time Warner’s CNN and its coverage. The deal was announced in October 2016 and quickly denounced by Trump.
The ruling could also prompt a cascade of pay TV companies buying television and movie makers, with Comcast Corp’s bid for some Twenty-First Century Fox Inc assets potentially the first out of the gate.
The merger, including debt, would be the fourth largest deal ever attempted in the global telecom, media and entertainment space, according to Thomson Reuters data. It would also be the 12th largest deal in any sector, the data showed.
“I conclude that the government has failed to meet its burden” to show that the merger was likely to substantially lessen competition, U.S. District Judge Richard Leon told the court. He called one of the government’s positions “gossamer thin” and another “poppycock.”
In a scathing opinion, he urged the U.S. government not to seek a stay of his ruling, saying it would be “manifestly unjust” to do so and not likely to succeed.
“That’s a legal shocker.” said J.B. Heaton, an attorney and consultant on litigation and regulatory proceedings. “I think we’ll see now that companies will be much more confident about vertical mergers,” he added, referring to acquisitions which tie together different parts of a business, such as production and distribution.
Shares of AT&T fell about 1.3 percent in after-hours trade following the decision, while Time Warner rose more than 5 percent.
Twenty-First Century Fox jumped 7 percent in extended trade after the ruling on expectations that Comcast and Walt Disney Co could start a bidding war to acquire its media assets. Comcast and Walt Disney dropped 4.3 percent and 1.8 percent, respectively.
Shares of other media and telecom companies also rose, including T-Mobile US Inc, Sprint Corp, CBS Corp, Dish Network Corp, Discovery Inc and Viacom Inc.
“This will be a blockbuster summer for media mergers,” said Mary Ann Halford, senior adviser to OC&C Strategy Consultants.
The Justice Department filed a lawsuit to stop the deal in November 2017, saying that AT&T’s ownership of both DirecTV and Time Warner would give AT&T unfair leverage against rival cable providers that relied on Time Warner’s content, such as CNN and HBO’s “Game of Thrones.”
Leaving the courtroom, Makan Delrahim, head of the Justice department’s antitrust division, said that he would read the judge’s opinion before making a decision on an appeal.
The Justice Department is not likely to be put off by the loss, said Amy Ray of the law firm Cadwalader, Wickersham & Taft LLP, noting it had prevailed in stopping other mergers between rivals.
“Put me on the side of the fence of thinking that AAG (Makan) Delrahim is interested in challenging the next problematic vertical transaction,” she said.
AT&T in a six-week trial argued that the purchase of Time Warner would allow it to gain information about viewers needed to target digital advertising, much like Facebook Inc and Alphabet Inc’s Google already do.
AT&T applauded the court’s decision. “We look forward to closing the merger on or before June 20,” a day before the contractual deadline with Time Warner, said David McAtee, AT&T general counsel.
The government estimated costs to industry rivals, such as Charter Communications Inc, would increase by $580 million a year if AT&T owned Time Warner.
Before the trial started, AT&T lawyers said the Time Warner deal may have been singled out for government enforcement but Judge Leon of the U.S. District Court for the District of Columbia rejected their bid to force the disclosure of White House communications that might have shed light on the matter.
The deal cost AT&T’s top lobbyist, Bob Quinn, his job in May after it became public that AT&T had paid Trump’s personal lawyer Michael Cohen $600,000 for advice on winning approval.
The ruling could also have implications for CBS’s potential tie-up with Viacom, which is already uncertain because of a lawsuit between CBS’s controlling shareholder, Shari Redstone, and its board.
Burns McKinney, a portfolio manager at Allianz Global Investors who owns AT&T, said he would not say the telecoms company had won a huge victory.
“It’s more that they just didn’t lose. You always wonder in these cases if there’s a winner’s curse, given the risk (AT&T) can’t get the desired synergies and they’re taking on a lot of debt with the merger,” he said.