AT&T battled DOJ for Time Warner, solely to spin it out three years later

The then CEO of WarnerMedia, John Stankey, speaks in 2016.

John Lamparski | Getty Images Entertainment | Getty Images

It wasn’t until three years ago that AT&T finally closed its $ 85 billion deal to buy Time Warner, ending a protracted battle with the Justice Department under then-President Donald Trump to block the deal.

Now it is spinning off its media resources from the deal to work with Discovery to create a content giant. If the deal is approved by regulators, AT&T will receive $ 43 billion in cash, debt, and WarnerMedia’s retention of some debt while effectively reversing the previous merger. The companies said Monday they expect the deal to close in mid-2022.

The deal marks a significant change in direction for AT&T after AT&T struggled for a year to buy Time Warner, since then renamed WarnerMedia, to create a vertically integrated content and distribution empire. The company that fought so hard for brands like CNN, HBO and Warner Bros. just a few years ago is now ready to let them go.

The shift shows how quickly the media landscape has changed as people switch from pay TV to streaming video services in record numbers. The competition for these subscribers is fierce, as underscored by the launch of Disney’s rapidly growing platform and the continued growth of Netflix.

Meanwhile, AT&T is facing new competition in its core business as T-Mobile and Sprint merged in 2020 to form a better competitor alongside Verizon and all three companies are looking to bring faster 5G service to subscribers .

John Stankey, CEO of AT&T, pointed out the changed environment in an interview on CNBC’s “Squawk on the Street” on Monday.

“Things have changed a little since the deal,” said Stankey, who led AT & T’s entertainment group at the time of the merger and was later named CEO of WarnerMedia before assuming his current role. “Despite the fact that we are doing this relatively quickly, the shareholders made this decision quite well.”

Following the release, an AT&T spokesperson stated via email that the company sees a changing landscape and the opportunity for any company to expand its capital base by splitting off media resources.

Since the contract was signed, “the world and our industries have changed significantly,” the spokesman wrote. “The fact that it goes straight to the consumer is a global opportunity that is rapidly developing and the pace of that development is accelerating. To be competitive and to win, you have to build a global scale. And, put simply, around that The type of capital we invest We need the capital instruments to do this. This is a step in aligning each of our businesses with the capital base required for future success. “

They added that HBO Max “exceeded” AT & T’s expectations and, when combined with Discovery’s services, “further consolidated” the combined company’s position in the global DTC marketplace.

The Covid-19 pandemic also highlighted the need for AT & T’s core business.

“The need for connectivity is higher than ever before,” said the spokesman. “In particular, connectivity with symmetrical upload and download speeds. With this transaction, we can increase our investments in spectrum and fiber.”

Here’s a look back at the long road AT&T has come to acquire Time Warner:

According to AT&T, Time Warner is a perfect match.

In October 2016, AT&T announced its plans to purchase Time Warner. Randall Stephenson, then CEO of AT&T, described the couple as “a perfect match” in a statement accompanying the publication.

AT&T pointed to the two companies’ “complementary strengths” in enabling them to deliver premium Time Warner content to customers on any screen over its network.

“A big problem for customers is to pay once for content, but not to be able to access it on any device or location. Our goal is to solve this,” said Stephenson in a statement at the time. “We want to offer our customers an unmatched selection, quality, value and experience that will determine the future of media and communication.”

AT&T positioned the business as a win for customers, saying it would give them new choices and offer more relevant content and advertising based on its insights into the network.

But Trump and his Justice Department didn’t see it that way.

Trump is against the deal

Former US President Donald Trump speaks at the Conservative Political Action Conference on February 28, 2021 in Orlando, Florida.

Octavio Jones | Reuters

As a candidate, Trump knocked out the AT&T Time Warner deal shortly after it was announced, saying his administration would not approve the deal “because there is too much concentration of power in the hands of too few”.

After his election, Trump kept this promise. Although some post-election experts speculated that a Republican administration would continue to view the deal’s prospects positively, Trump’s Justice Department later disproved that thinking by filing a lawsuit in November 2017 to block the deal.

Many Democrats and antitrust experts feared that Trump’s opposition to the deal was influencing the DOJ’s lawsuit. Trump made no secret of his dislike of Time Warner’s CNN, which he often positioned as his slide for popping what he called the “wrong news.”

The DOJ’s top antitrust officer at the time, Makan Delrahim, has repeatedly denied that Trump had any influence over the decision to block the merger. He told CNBC as recently as January that he “never” spoke to Trump or heard from White House officials about the case during the investigation or trial.

A fight with the DOJ

When the DOJ sued in 2017 to block the AT&T-Time Warner merger, it claimed the combination was illegal and would ultimately harm consumers through price increases.

Stephenson said on a conference call at the time that the suit “would have nothing but a freezing effect on trade”.

The lawsuit came shortly after Delrahim was approved by the Senate as head of the DOJ’s antitrust division. But a year before filing the lawsuit to freeze the case, Delrahim had told a Canadian news agency that he did not consider the combination a “major antitrust problem”. At this point, he admitted that there might be concerns about one distributor’s ownership of content and its impact on other distributors.

In June 2018, U.S. District Court judge Richard Leon ruled the deal was legal and did not restrict completion of the merger. Leon wrote that the government had failed to meet its burden to prove that the deal would significantly reduce competition.

The DOJ dropped the lawsuit after losing on appeal in February 2019.

For his part, Delrahim told CNBC earlier this year that he still believes another judge gave him a win.

“Sometimes different judges could come to different conclusions on the same exact facts. I am therefore convinced that if we had had a different judge in this case, we might have got a different result,” he said.

Never mind

AT&T and Time Warner officially completed their merger in June 2018 before the DOJ appealed.

AT&T changed the name of the media business to WarnerMedia and has since taken care of staff and streaming services, including simplifying HBO’s streaming offerings.

Still, HBO has lagged behind in subscriber numbers compared to competitors like Netflix and Disney +. HBO and HBO Max reportedly have about 64 million subscribers worldwide, while Netflix has about 208 million and Disney + has more than 100 million in about a year and a half of service.

After AT&T spent so much time acquiring Time Warner, its decision to let go of those assets is a recognition of the new realities of the streaming wars that are providing services with rich content offerings like Netflix and Disney’s deep archive of beloved classics too seem to reward.

“My job is to make sure this is okay for the AT&T shareholder overall,” Stankey told CNBC on Monday, “and I think we did that here.”

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