What Donald Trump as President Could Mean for AT&T-Time Warner

As people across the U.S. assess what Donald Trump’s upset victory over Hillary Clinton in the presidential election means for them, Hollywood and Washington, D.C., woke up Wednesday thinking about the impact the new man in the White House will have on the biggest media deal in years: AT&T’s planned $85.4 billion acquisition of Time Warner.

AT&T CFO John Stephens at a Wells Fargo investor conference on Wednesday was asked about just that, saying: “From a company perspective, we really look forward to working with president-elect Trump and his transition team.”

He said Trump’s campaign talk about infrastructure investment, innovation and economic development “all fit right in with AT&T’s goals.” And he said: “We have been the leading investor in this country for more than five years running. And our Time Warner transaction is all about innovation, economic development, consumer choice and investment in infrastructure with regard to providing a great 5G mobile broadband experience. So we look forward with optimism to working with the leadership.”

Asked about the likelihood of getting regulatory approval for the deal, Stephens said: “With regard to a vertical integration transaction like this … the history is pretty clear. In our industry, there is nothing that we can find on record with the [Department of Justice] ever denying one of these mergers. And quite frankly there is good reason for that, because it brings consumer choice, it brings innovation and it will benefit consumers. So from that perspective, we are optimistic, we look forward to working through the process.”

An AT&T spokesman and Time Warner didn’t comment further.

In a sign of Wall Street concern about the Trump win’s impact on the deal, Time Warner shares in early Wednesday trading dropped more than those of its peers. As of 10:30 a.m. ET, the stock was down 1.4 percent after earlier falling more than 2 percent. AT&T’s stock was up 0.8 percent.

Analysts, meanwhile, also started discussing what a Trump presidency would mean for the FCC, DOJ, the Time Warner deal and other possible media M&A.

“It’s about the FCC and the bully pulpit,” said Steve Birenberg of Northlake Capital Management. “Trump is good for cable and telco, because the FCC will shift dramatically. Net neutrality likely goes out the window.”

But he also acknowledged: “Trump’s bully pulpit is, well, unpredictable. Given his relationship with media, it seems he would be less friendly as his initial comments on Time Warner-AT&T may suggest.”

Moody’s Investors Service analyst Neil Begley, meanwhile, argued that the Trump presidency would mean “less regulatory interference and a more laissez-faire environment.” He said he had expected “less rule creation from [a possible] Clinton FCC than the Obama FCC and [expects] far less under a Trump FCC.”

Trump recently said that he would not approve the AT&T and Time Warner combination if he wins the election. “Deals like this destroy democracy,” he said during a rally in Gettysburg, Pa., where he discussed what he would do in the first 100 days of his presidency.

Speaking about his battle with the “dishonest mainstream media,” Trump explained: “As an example of the power structure I’m fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few.” He also said he would like to break up Comcast-NBCUniversal.

The Time Warner acquisition, which follows AT&T’s takeover of satellite TV giant DirecTV, immediately became a political football for people across political party lines, with Trump and Bernie Sanders both urging regulators to reject the deal. Even middle-of-the-political spectrum reps, such as Democratic vice presidential nominee Tim Kaine, voiced concern. The U.S. Senate’s antitrust subcommittee has said it will hold hearings on the deal soon.

“I’m not surprised. They are uninformed comments,” AT&T CEO Randall Stephenson said at a recent conference when asked about the remarks from Trump and Kaine. “Anybody who characterizes this as a means to raise prices is ignoring the basic premise of what we’re trying to do here.”

As evidence, he announced that upcoming streaming service DirecTV Now would launch with a price of only $35 per month. “That’s not a medium for raising prices,” Stephenson said.

But some observers said Trump’s softer tone in his victory speech could well be the start of a change in rhetoric. “It will be very interesting to see how all his campaign rhetoric plays at now that he will actually be president,” MLM Partners analyst Eric Handler tells The Hollywood Reporter. “I think there will be a lot of things where we will have to wait and see how Trump the president differs from Trump the candidate.”

Even if a Trump administration ultimately decides to reject AT&T’s acquisition of Time Warner, that doesn’t necessarily spell the end of the nuptials. Although most companies abandon proposed mergers or settle upon government objection, there have been plenty of instances when corporations fight in federal court. For instance, medical technology provider Steris Corp. was able to complete an acquisition of U.K.’s Synergy Health PLC after a Ohio judge in September 2015 refused the Federal Trade Commission’s injunction demand. Nevertheless, the government is often successful in getting its way in court as demonstrated by the D.C. federal judge who agreed to block the Staples-Office Depot merger in May.

AT&T has some legal advantages, including possibly sidestepping the FCC. The merger is also a vertical integration between a distributor and supplier rather than a horizontal one between two competitors in the more classical sense. The latter typically gets a much tougher review by courts. Additionally, if a fight makes it that far, the ninth Supreme Court justice expected to be appointed by Trump is likely to be a business-friendly conservative. On the other hand, given all the political rhetoric, the atmosphere for mergers could become increasingly inhospitable, potentially impacting not just AT&T-Time Warner, but also discussions between CBS and Viacom on a reunion.

Stephenson has acknowledged challenges, but said the deal should be approved. “What this is, is a vertical merger in its purest sense,” he said in announcing the takeover. “Time Warner is a supplier to AT&T, and we are combining with a supplier. It is a classic vertical merger. And I think you are hard-pressed to find many instances in the United States where the only remedy for the government if they had concerns was to block them. They are typically always dealt with by remedies — concessions, if you will — and conditions imposed on a combination. That’s what we anticipate happening here.”

MoffettNathanson analyst Craig Moffett tells THR that much will depend on who Trump picks as heads of the Department of Justice and FCC. “Policy is people,” he says. “It’s all about who gets appointed to the key positions at the FCC and DOJ.”

If AT&T decides the fight is too heavy a lift, or if the merger is blocked by the government, the agreement between the two companies calls for a $500 million break-up fee by AT&T to Time Warner.