AT&T-Comcast Deals Forming Regulatory Logjam: Real M&ATara Lachapelle, Elizabeth Wasserman and David McLaughlin
Regulating the U.S. cable and telecommunications industries just got more complicated and that is likely to mean more delays for deal-hungry companies from AT&T Inc. to Japan’s SoftBank Corp.
Between Comcast Corp.’s takeover of Time Warner Cable Inc. and AT&T now buying DirecTV, there’s more than $130 billion of deals among cable and telecommunications providers that require approval. That’s the greatest amount of pay-TV assets sitting in front of regulators including the Federal Communications Commission at one time, according to Bloomberg Industries. It may not stop there as analysts see Dish Network Corp. searching for a merger partner, and Sprint Corp.’s parent SoftBank continues to vie for T-Mobile US Inc.
“This pushes back all the deals because now the regulators have to struggle to understand a more volatile marketplace,” Tom Eagan, a New York-based analyst at Telsey Advisory Group, said in a phone interview. “They may be wondering, is there going to be a third deal in this space? They don’t want to make their decision in a vacuum.”
A tie-up of AT&T and DirecTV would create a stronger competitor to a merged Comcast-Time Warner Cable, easing Comcast’s ability to obtain clearance, said Herbert Hovenkamp, a law professor at the University of Iowa. Sprint and T-Mobile may face greater hurdles given that AT&T was blocked from acquiring T-Mobile in 2011, which would have shrunk the number of major wireless carriers from four to three, said Chris Sprigman, a New York University law professor and former Justice Department attorney.
“It’s a dizzying amount of relationships and impacts that the regulators have to consider,” Jonathan Chaplin, a New York-based analyst at New Street Research LLP and former M&A banker, said in a phone interview. “They went from playing a game of checkers to four-dimensional chess.”
Comcast announced its takeover of Time Warner Cable in February for about $68 billion, which includes net debt. Within days of learning about that deal, which will make the biggest U.S. cable company even larger, AT&T was planning its response. On May 18, AT&T and DirecTV said they agreed to a deal valued at about $67 billion, including net debt.
Regulators’ decisions will affect about 35 million U.S. customers between the two target companies.
On top of that, Sprint and T-Mobile may bring a $30 billion merger before U.S. regulators in June or July in what would combine the country’s No. 3 and No. 4 wireless carriers, people with knowledge of the matter said last month.
“There’s just a bunch of deals coming down the pipe at the same time and they’re all competitively significant,” Sprigman said in a phone interview. “It’s hard to tell, frankly, what the antitrust authorities are going to do.”
Of the two deals now up for review, Comcast and Time Warner Cable have an easier path to approval because they don’t compete with one another, said Eagan of Telsey, who pegs the chances of the deal closing at 75 percent to 80 percent. Merging AT&T and DirecTV, however, would mean removing an option for subscribers in certain markets, which makes the decision more difficult for regulators, he said.
The odds for AT&T and DirecTV are 50/50, Michael Hodel, a Chicago-based analyst for Morningstar Inc., wrote in a report yesterday. Meanwhile, Buckingham Research Group put the odds at about 90 percent.
AT&T abandoned a bid for T-Mobile less than three years ago, thwarting its ambitions of surpassing Verizon Communications Inc. as the biggest wireless carrier, after the Justice Department sued to block the deal because it would “substantially lessen competition.”
A combination of Sprint and T-Mobile may face similar resistance. Bill Baer, the top U.S. antitrust chief, has lauded competition by T-Mobile, saying earlier this year that consumers have benefited from its efforts to gain customers over rivals. Baer said in a filing last week with the FCC that the Justice Department opposes a reduction in the number of competitors in the wireless industry
The Justice Department and Federal Trade Commission share responsibility for antitrust enforcement.
The last time there was this much activity in the industry for regulators to review was when Comcast bought AT&T’s cable-TV business for about $59 billion in 2001 and later acquired assets from bankrupt Adelphia Communications Corp. in 2005, said Paul Sweeney, an analyst for Bloomberg Industries. Those transactions were spread out over several years and still fall short of the industry’s current volume of deals.
“The regulators are entering uncharted territory in terms of the sheer dollar amount of the deals they are reviewing at one time,” Sweeney said in a phone interview.
While Sprint and T-Mobile aren’t part of the cable industry, “it would be a third major transaction in front of the same regulators” within the broader technology, media and telecommunications sector, he said.
Then there’s Dish. Bloomberg News reported in March that Chairman Charlie Ergen had approached DirecTV about a merger. Verizon has had talks with Dish in the midst of the recent industry consolidation, DealReporter said yesterday, citing an unidentified person briefed on the matter.
“With this M&A environment we’re in, everyone is finding their partners, and Dish probably has to do the same,” Amy Yong, a New York-based analyst at Macquarie Group Ltd., said in a phone interview, noting that the cash portion of AT&T’s offer for DirecTV is low enough that Dish could swoop in with a counteroffer.
Bob Toevs, a spokesman for Dish, said yesterday the company doesn’t comment on takeover speculation. Verizon Chief Executive Officer Lowell McAdam said today at a JPMorgan Chase & Co. conference in Boston that the company isn’t in talks to acquire Dish.
Comcast’s pending acquisition of Time Warner Cable is partially what sparked the frenzy, and it will likely accelerate Dish’s timeframe for striking a deal of its own, Chaplin of New Street Research said.
“There’s a sense in the industry that if you’re going to present a deal, do it now while the FCC’s reviewing Comcast-Time Warner Cable,” he said.