AT&T Inc.'s proposed purchase of Time Warner Inc. arrived amid a presidential campaign in which populist anger has led both major parties to rail against big business. That politically charged climate, experts said Monday, means the companies face an uphill climb for regulatory approval.
Deciding whether to give the green light to the $85.4-billion deal will be one of the first challenges facing the administration of the next president. And it will provide an early sign of whether campaign rhetoric matches executive action.
AT&T Chief Executive Randall Stephenson expressed optimism Monday that regulators would give their blessing by the end of next year. But the mega-merger has sparked bipartisan concern.
"This proposed massive consolidation of distribution and content raises potentially serious questions about competition, consumer choice and privacy across the media, cable TV, wireless and broadband industries," Sen. Patrick Leahy (D-Vt.) said. He called for the Senate Judiciary Committee to hold a hearing on the deal.
The panel's antitrust subcommittee will hold a hearing next month, said chairman Sen. Mike Lee (R-Utah) and Sen. Amy Klobuchar (D-Minn.), the top Democrat.
Republican presidential nominee Donald Trump said his administration would block the deal if he were elected president. And Democratic vice presidential nominee Tim Kaine said he generally favored more competition and less concentration in the media.
"If AT&T and Time Warner thought that approval was a foregone conclusion, they've made a big mistake," said Andrew Jay Schwartzman, a Georgetown University law professor and longtime consumer advocate. "This will be greeted with a great deal of skepticism and intense review."
Investors appeared nervous Monday, selling off shares of both companies after Moody's Investors Service and S&P Global Ratings said they could downgrade AT&T's credit rating.
As speculation about the deal swirled Friday, AT&T shares slid 3% while Time Warner's jumped 7.8%. But on the first trading day after the deal's weekend announcement, AT&T stock declined 1.7% Monday and Time Warner shares dropped 3.1%.
"The market's certainly worried," said Richard Greenfield, a media industry analyst with BTIG Research. "The stock traded down as much as it did because there's real concern about approval."
The deal would transform telecommunications giant AT&T into the nation's largest entertainment company.
AT&T, which acquired DirecTV last year, would add Time Warner's stable of premium content, including HBO, CNN, TBS, TNT, Cartoon Network and the Warner Bros. TV and film studio.
"A deal of this size and scope, and the impact it will have on consumers, should receive the highest level of regulatory scrutiny," said a spokesperson for Rupert Murdoch's 21st Century Fox media company, which tried unsuccessfully to acquire Time Warner two years ago.
In an earnings call with analysts Monday, Stephenson said regulators might impose some conditions on the deal but he did not specify what they might be. He said he was optimistic about approval because the purchase is a "vertical integration" of companies that don't directly compete against each other instead of a horizontal merger of rivals.
"There may be conditions, but we're convinced that these issues can be handled with conditions and it's rare, in fact, I'm not sure we know of a situation where vertical integration has been blocked by the government in our two sectors," Stephenson said.
AT&T has agreed to pay Time Warner $500 million if the deal doesn't receive regulatory approval.
The Justice Department will review the acquisition to determine if it would harm competition. But AT&T and Time Warner could try to avoid a broader review by the Federal Communications Commission of whether it is in the public interest.
The FCC only has jurisdiction if a transaction involves the transfer of communications licenses, such as when Comcast Corp. acquired NBC Universal and its stable of broadcast TV stations.
Time Warner has only one broadcast TV station, WPCH in Atlanta, which it could exclude from the deal. Time Warner's Turner Broadcasting System also has several licenses to transmit video signals to satellites, and those might be harder to leave out of the transaction.
"At this point, we are determining which FCC licenses of Time Warner, if any, would transfer to the new company," AT&T General Counsel David R. McAtee II said on the analyst call. "And obviously, if there are licenses to be transferred, the FCC would review those."
Schwartzman said AT&T and Time Warner probably would do whatever they could to avoid the need for FCC approval.
"The Justice Department enforces the antitrust laws, which are narrowly focused on harm to competition," he said. "The FCC operates under a broader statute which considers competition concerns, but also broader public interest considerations, such as diversity, promoting broadband deployment and other social factors."
The transition to a new presidential administration also will complicate the approval process. Under Trump, there would be a new attorney general running the Justice Department and a new head of the Federal Communications Commission.
If Clinton wins, she could decide to retain Atty. Gen. Loretta Lynch and FCC Chairman Tom Wheeler. Or they could stay on temporarily and oversee the initial parts of the merger reviews, before their replacements are nominated and confirmed. Previous media industry deals have taken regulators 12 to 14 months to review.
The Obama administration has been tougher on mergers than officials under former president George W. Bush.
In the media industry, the Justice Department and FCC blocked AT&T's deal to acquire rival T-Mobile, and Comcast abandoned its attempted purchase of Time Warner Cable after regulators informed the companies of their concerns.
The Comcast/NBC Universal deal was approved with several conditions, although public interest groups have since criticized their enforcement by the FCC.
Still, Greenfield said it could be difficult for regulators to reject the AT&T-Time Warner deal because it does not involve companies that compete against each other.
"From a competition standpoint, it doesn't seem to have the issues that Comcast dealt with," he said. "Not liking something is different than having the legal reason to block it."
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5:10 p.m.: This article has been updated with market reaction and analysis.