On Thursday, the Department of Justice did something silly. It filed to appeal the AT&T Inc. (NYSE: T) merger with Time Warner, which got the green light for approval in June by a federal judge.
In fact, right after the deal was approved, it closed. The two formerly distinct companies are already officially wed.
Still, that the DOJ is throwing its weight around once again was enough to ding AT&T stock, which lost about 2 percent in Friday trading.
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Despite the fracas, investors shouldn’t make any rash decisions based on the DOJ’s surprising move. The government’s appeal doesn’t make sense, and the Justice Department is bound to “take the L” on this one (yet again).
Trump can’t let the deal go. President Donald Trump has come out publicly against the deal, and his well-known active opposition to it raised eyebrows when the merger was in the courts, as it seemed plausible the president’s strong views on the subject were influencing the DOJ’s pushback.
Time Warner, after all, is the parent company of CNN, perhaps the media outlet most loathed and frequently berated by the former reality TV star.
Reports that CNN was the thorn in the government’s side when the AT&T-Time Warner merger was before the courts also supports the view that the DOJ’s opposition may have been directly influenced by Trump’s bias.
Not everyone has a problem with that.
“The American people voted in a president who vowed to block the deal and there is nothing wrong with that influencing the government’s decision-making, in my view,” says Joseph Tipograph, Washington bureau chief of PaRR and Dealreporter.
The AT&T–Time Warner merger is still a loser for the DOJ. Clear bias aside, the judge who ruled in favor of the merger in June was remarkably clear about how weak the government’s case was. “Suffice it to say — as my 170-plus page opinion makes clear — I do not believe that the government has a likelihood of success on the merits of an appeal,” U.S. District Judge Richard Leon said.
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The decision to appeal now, after the DOJ decided not to stay and appeal the verdict last month, is silly, transparent, and doomed to fail. “We think the likelihood of this thing being reversed or overturned is really remote,” said AT&T CEO Randall Stephenson in a CNBC interview on Friday.
Tipograph, while unbothered by a Justice Department whose agenda can be swayed by the president, agrees. “At the end of the day, this was always going to be a losing case for the government — the District Court confirmed that, and the higher courts should be expected to follow suit.”
The government’s argument is that the vertical integration of AT&T’s cable distribution network and Time Warner’s cable programming would be anticompetitive and bad for consumers, who could face higher prices.
AT&T, meanwhile, argued that something like its $85 billion Time Warner acquisition was necessary if the company wanted to survive — and thrive — in the longer term. Specifically, the media landscape has dramatically changed with the rise of digital content and streaming competitors like Netflix ( NFLX), Amazon.com ( AMZN) and Alphabet ( GOOG, GOOGL).
The takeaway for investors. Friday’s modest decline in AT&T stock shouldn’t scare investors. The DOJ’s decision to appeal introduces a new risk that was thought to have been put to bed a month ago, so in that sense the 2 percent decline is understandable.
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But the forcefulness of the previous ruling by Judge Leon in favor of the merger, combined with the Trump administration’s plain-as-day hatred of CNN, should give investors some assurance. The AT&T — Time Warner merger isn’t being appealed because an appeal has merit. It’s being appealed out of vengeance.
Let’s call an apple an apple.
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Investors Shouldn’t Worry About the AT&T Inc. (T) – Time Warner Appeal originally appeared on usnews.com
