Photographer: Andrew Harrer/Bloomberg

AT&T-Time Warner Deal Challenged by Brazil Antitrust Agency

  • Transaction on course to close by end of year, carrier says
  • Sky Brasil could fetch $5 billion: Bloomberg Intelligence

Brazil’s antitrust watchdog said AT&T Inc.’s $85.4 billion deal for Time Warner Inc. poses a high risk to competition, a potential complication that threatens to delay the final approval process.

The transaction as originally presented should be rejected unless the companies agree to changes that may include asset sales, according to a recommendation published Tuesday by the staff of Cade, as the antitrust agency is known. It didn’t specify what properties might need to be divested. The Cade board has until Nov. 22 to issue a final ruling, though that deadline can be extended by 90 days.

The merger combines one of the world’s largest telecommunications providers with the owner of media properties like Warner Bros. and HBO. It would also create a TV powerhouse in Brazil that may run afoul of a law that prohibits pay-TV providers from owning programming content. AT&T acquired a 93 percent stake in Sky Brasil as part of its $48.5 billion takeover of DirecTV in 2015, and has been ambivalent about what it will do with the unit.

“Both Sky and Time Warner have significant market power,” Cade said in a statement.

Benefits, Options

AT&T disagreed with the opinion of the antitrust agency and said the Time Warner deal will bring benefits and more options for consumers. Larry Solomon, an AT&T spokesman, said the company still expects to close the deal by year end.

“AT&T and Time Warner will work with Cade to clarify any issues they may have to promptly reach a final resolution on the matter,” the company said in a statement.

There were 5.5 million Sky Brasil subscribers at the end of June, according to an AT&T filing. Based on other pay-TV provider valuations, Sky Brasil could fetch $5 billion if the company decided to divest the property, according to Bloomberg Intelligence estimates.

The Time Warner deal has gotten regulatory approval in 16 countries, and AT&T is waiting for Chile and the U.S. to sign off on the deal in addition to Brazil. U.S. antitrust officials started talking to representatives from AT&T and Time Warner last month about possible conditions that could secure approval of their tie-up, according to people familiar with the matter.

Time Warner, based in New York, fell 0.4 percent to $101.69 at 11:08 a.m. in New York, compared with AT&T’s offer price of $107.50 a share. AT&T, based in Dallas, climbed 0.5 percent to $37.76.

Competition Effects

Brazil’s telecommunications regulator had asked Cade in June to review the deal, saying remedies should be adopted because it may negatively affect Brazil’s pay-TV market. In its report Tuesday, Cade said it’s just studying the competition effects of the merger. Competitors’ complaints that the deal could run afoul of a law that prohibits pay-TV providers from owning programming content would have to be analyzed by other government agencies, Cade said.

Representatives for Time Warner weren’t available for comment.

— With assistance by Jessica Brice, and Julia Leite

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