Justice Department to appeal AT&T-Time Warner case

SUN VALLEY, Idaho -- The U.S. Department of Justice (DOJ) said Thursday it will appeal a federal judge's approval of AT&T's $85 billion takeover of Time Warner, despite the two companies being weeks into the integration.

As first reported by FOX Business on Wednesday, DOJ antitrust officials had privately decided to appeal the ruling, but faced resistance from the most important player in the process: the office of the U.S. Solicitor General.

FOX Business learned from people close to the DOJ’s antitrust division that an appeal of the landmark ruling by U.S. District Judge Richard Leon was all but a certainty if Solicitor General Noel Francisco approved the action.

Behind the scenes, DOJ antitrust chief Makan Delrahim impressed upon Francisco the need to show the media industry the government's new position on large, "vertical" mergers that combine cable and satellite distribution of programming with premium content. The DOJ position is that big deals lead to higher prices for consumers.

Another key legal move by the DOJ is that the case will be heard by a panel of judges in the D.C. Circuit Court of Appeals, which is considered to have more liberal judges who may see things differently than Leon, a George W. Bush appointee. 

Liberal consumer groups, including progressive lawmakers like Sen. Elizabeth Warren (D-MA), had supported the Trump administration’s efforts to bust up the merger.

"Makan would have done this sooner were it not for the Solicitor General," said one person close to the DOJ.

It's unclear how the appeal could impact the merger of AT&T and Time Warner. Some DOJ officials believe that AT&T could keep Time Warner in a separate company until the courts rule once and for all.

Shares of AT&T fell in after-hours trading following the filing.

A spokeswoman for AT&T had no immediate comment on the structure of the company going forward but did release this statement:

"The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned. While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances. We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals.”

A DOJ spokesman had no immediate comment to FOX Business.

The Solicitor General's office must approve any appeal made by the DOJ either in federal courts or the Supreme Court.

"The view in the Solicitor General’s office is that the government has limited capabilities of successful appeals and you don't want to squander those on cases that are borderline," said one government official who spoke to FOX Business on the condition of anonymity.

In his June 12 approval of the AT&T-Time Warner deal, the judge specifically asked the DOJ not to seek a stay on his ruling as he summarily rejected the government's main argument: Combining AT&T’s vast satellite and cable distribution with premium content from Time Warner would create a colossus that would violate antitrust laws. The government unsuccessfully argued that the combined company could at will raise prices for consumers without competitive pressures.

The government had 60 days after the ruling to appeal. Still, just days after the ruling, AT&T’s board closed the purchase of Time Warner, leading many market participants to believe the government had given up its efforts to block the acquisition.

The approval of the deal gave confidence to other media companies to pursue acquisitions. For example, media conglomerate Comcast launched a bidding war for 21st Century Fox’s entertainment assets slated to be sold to The Walt Disney Company. 21st Century Fox is the parent company of FOX Business and Fox News.

Disney countered with a higher bid, now valued around $71 billion, but Comcast CEO Brian Roberts is said to be so heartened by Judge Leon's ruling allowing AT&T to grow larger that he began contemplating another, higher bid for the Fox assets. 

Now with the DOJ’s appeal official, it is unclear if Roberts will make that bid or focus on another Fox asset in play -- Sky PLC. Fox recently sought to close a deal to acquire all of Sky, a move that would allow Disney to acquire those assets as well. As FOX Business previously reported, bankers representing Disney say they believe Comcast might ultimately bow out of a bidding war for the Fox assets, because of leverage concerns. Instead they may focus on securing Sky or a smaller portion of Fox. Bankers say a higher Comcast bid for Sky is likely; Comcast didn't return a call for comment.

DOJ has launched a preliminary review of a possible Comcast-Fox deal and could have a position on the matter by next week, sources say.

The department has already approved Disney’s purchase of the Fox assets, which include FX Network, National Geographic Channel and Fox Sports Network. DOJ believes Disney’s purchase of Fox's assets won't lead to price gouging because Disney does not have a large distribution arm, a change in the traditional approaches taken by DOJ.

While Delrahim has stated that his opposition to AT&T buying Time Warner is based on antitrust law, the government’s case has always been clouded by statements made by President Trump on the propriety of the merger. “A deal we will not approve in my administration because it's too much concentration of power in the hands of too few,” said Trump in Gettysburg, Pennsylvania, just days before the 2016 election.

Meanwhile he continues to publicly attack CNN, the cable network owned by Time Warner, as "fake news" for its tough coverage of his campaign and controversies now that he is president.

Trump has been similarly critical of Comcast's news division, NBC Universal, for its coverage, privately referring to it as "public enemy No 1." A White House spokesman had no immediate comment.

As deal-making speculation continues to swirl, particularly here at the Allen & Co. media conference in Sun Valley, back in Washington Delrahim has made a key move at discouraging companies like AT&T -- and possibly Comcast -- from getting larger and more powerful.