Tara Lachapelle is a Bloomberg Gadfly columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

As the U.S. Justice Department tries to block AT&T Inc.'s $109 billion purchase of media giant Time Warner Inc., Time Warner seems to be bearing the brunt of investors' apprehension. But if regulators get their way, it's AT&T they should be more worried about.

The DOJ on Monday sued to block the wireless carrier's takeover of Time Warner, saying it would substantially reduce competition and result in higher prices and less innovation. While it remains to be seen whether the DOJ can successfully make its case, this does mean shareholders will remain in limbo that much longer. And not only them, but also some 25,000 Time Warner employees who have already been waiting 394 days to learn their company's fate. 

The lawsuit had been expected for more than a week, but it somehow still managed to push down Time Warner's stock price by 1 percent on Monday, adding to another month of painful losses after October's sudden plunge. Before then, the prevailing thought had been that the merger would win regulatory approval fairly easily. Now, this ugly chart I highlighted last week is looking even uglier: 

Merger Meltdown
Both Time Warner and AT&T have plunged as the U.S. Justice Department tries to stop their merger, but AT&T needs the deal far more because it's the linchpin of its video strategy
Source: Bloomberg

This puts in motion a case that will be closely watched by all executives in media, pay-TV and telecommunications, and used as a gauge of the Trump administration's openness to conglomerate-building in the space (the president and his pick for antitrust chief, Makan Delrahim, haven't always been consistent on this subject). For the sake of argument, let's put aside the theories that Trump is meddling in the process because of his antipathy toward Time Warner's CNN news network. AT&T has a good chance of winning in court

But to play devil's advocate for a moment, if this deal is killed, AT&T's entire video-entertainment strategy goes kaput -- at least temporarily -- and that would darken its outlook. As for Time Warner, it's probably trading near its floor value now; it would likely go about doing what it's doing, until it almost certainly receives other takeover bids.

Time Warner's Floor
Most investors figure around $80 to $85 is the lowest price Time Warner will drop to if regulators successfully block AT&T's acquisition. The stock closed at $87.71 on Monday.
Source: United First Partners

The stakes are higher for AT&T, which is why it's going to fight hard in court. The company is looking to make its wireless and video offerings more attractive -- and more profitable -- by controlling Time Warner's content, which include popular shows from HBO and CNN as well as sports programming. The company made a $67 billion bet on DirecTV, a satellite business, that's since lost hundreds of thousands of subscribers. It needs something to win them back.

Meanwhile, AT&T's legacy wireless business is caught on the losing end of a price war -- at least in the sense that it's not winning over customers the way T-Mobile US Inc. and Verizon Communications Inc. have been. 

Data Binge
Competition has been fierce this year for unlimited-data plans for smartphones, with T-Mobile and Verizon reaping much of the rewards:
Source: Bloomberg

While AT&T gets wrapped in government red tape, everyone from Verizon and Walt Disney Co. to Comcast Corp. and Sony Corp. reportedly have their eyes on 21st Century Fox Inc., which may be looking to sell certain entertainment assets. With so much interest in content, the value of Time Warner is going up, not down. 

Much of the bull argument for AT&T, then, depends on the Time Warner deal. And even though there are other fish in the sea, Time Warner is arguably the best. And if AT&T is left saying, "Now what?," just imagine where that will leave shareholders. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at

To contact the editor responsible for this story:
Beth Williams at