On Wednesday, the U.S.Justice Department filed an antitrust lawsuit against DirecTV and (now parent company) AT&T. The suit alleges collusion over the way information was shared between channel providers during negotiations to carry a channel devoted solely to Dodgers baseball. The lawsuit comes at a time when AT&T is submitting an $84 billion proposal to acquire Time Warner. Is that acquisition now in danger?
AT&T-Direct TV Faces Lawsuit Over Dodgers Channel
AT&T is in advanced talks to acquire Time Warner for $84 billion. However, that deal must first pass antitrust regulatory hurdles. Now, those regulators have some dirt to work with as AT&T is coming under fire for illegally sharing information and agreements with DirecTV, Cox Communications, and Charter Communications as the companies negotiated whether to carry SportsNet LA, a channel focused on Dodgers baseball, carried by Time Warner Cable (which is a different company than Time Warner, AT&T’s acquisition target).
The complaint says those pay TV providers allegedly shared non-public information with each other to “reduce each rival’s fear that competitors would carry the Dodgers Channel, thereby providing DirecTV and its competitors artificially enhanced bargaining leverage to force TWC to accept their terms.” The case is already seen as a red flag against AT&T’s acquisition of Time Warner. DirecTV, now owned by AT&T, and Cox Communications still refuse to carry the channel because of its high cost, which comes in at $5 per month per subscriber household.
Will the Time Warner deal be nixed before it even gets a chance to pass muster?
There’s always that possibility in such a large acquisition, but most likely, the deal will pass.
When reviewing mergers, antitrust regulators look for areas of overlap which may give merging companies an unfair advantage over competitors or even remove one of the companies as a competitor. For example, Halliburton, the world’s number 2 oil and gas service provider, tried for two years to acquire Baker Hughes, Inc., the world’s number 3 oil and gas service provider. That merger would have eliminated one of the major oil and gas service providers in the world, leaving only two big players, effectively letting them raise prices. That deal was scrapped in May. Now, Baker Hughes is to be acquired by General Electric’s oil and gas operations, creating what is essentially a new number two oil and gas service provider.
That merger is far more likely to pass because while GE supplies oil products to companies, they are not drilling experts. In that same regard, AT&T is a telecommunications company, and Time Warner a media company. AT&T has a massive audience base, and ways to reach them between internet devices and television and phones, but no content to utilize in order to monetize users with ads. As such, the merger makes sense.
Watch here as AT&T officially declare the partnership with Direct TV and what they have stored for us!
Even though the lawsuit shouldn’t impact the merger, shares of AT&T (T) are down 0.52% on the day. AT&T makes a great long-term play, especially once gaining approval for the Time Warner deal.
The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.
This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.
The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.