What Are the Regulatory Hurdles of the AT&T–Time Warner Deal?

AT&T to acquire Time Warner

AT&T (T) announced a definitive agreement to acquire Time Warner (TWX) in a stock-and-cash transaction valued at $107.50 per Time Warner share. The proposed transaction is subject to approval by Time Warner shareholders, regulatory approvals, and other customary closing conditions.

Though this is a vertical integration, a deal of this size could face a significant regulatory review process, with competitors concerned about a large competitor controlling premium content assets.

What Are the Regulatory Hurdles of the AT&T–Time Warner Deal?

Political opposition to deal continues to grow

Several politicians have already expressed their opposition to the deal. According to a Reuters report from October 26, 2016, Democratic presidential nominee Hillary Clinton said she believed that AT&T’s proposed acquisition of Time Warner required further study and analysis.

According to a Wall Street Journal report from October 24, 2016, Republican presidential nominee Donald Trump said that if elected, he would be reluctant to approve the acquisition “because it’s too much concentration of power in the hands of too few.”

The acquisition of Time Warner is seen as another attempt by AT&T to pursue revenue growth outside its traditional carrier business where competition has become more intense. Smaller carriers T-Mobile (TMUS) and Sprint (S) are going out of their ways with hefty discounts to steal market share from their larger rivals. AT&T reported revenue of $40.9 billion in 3Q16. The graph above shows AT&T’s revenue in the last five quarters.

AT&T’s view on the acquisition

AT&T has stated that the two companies are not direct competitors and shouldn’t face regulatory scrutiny. The company further stated, “This transaction is about giving consumers more choices, not less. It is about expanding the distribution of Time Warner’s content, not restricting it.”

Comcast’s (CMCSA) acquisition of a 51% stake in NBCUniversal from General Electric (GE) was approved by the FCC (Federal Communications Commission) after a 13-month review.

AT&T has agreed to pay a $500 million breakup fee if the deal is blocked by regulators.