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Why New Roadblock for Dealmaking May Be Vertical

Game of Media Thrones

Game of Media Thrones

Photographer: Helen Sloan/HBO

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For decades, U.S. antitrust enforcers have worried mostly about mergers between direct competitors that might lead to higher consumer prices. They’ve been less bothered by deals between companies that are in related businesses but don’t compete directly. That could be changing with the Justice Department’s lawsuit to block an $85.4 billion merger between AT&T Inc. and Time Warner Inc., which combines a distribution company with a content provider. The shift in enforcement raises the possibility that similar types of combinations could hit a roadblock, slowing down the pace of dealmaking.

Horizontal and vertical. In the horizontal kind, a company buys one of its competitors. Imagine if Toyota Motor Corp. bought General Motors Co., or Apple Inc. acquired Samsung Electronics Co. These are the types of deals that have raised antitrust worries in the past. Vertical deals, on the other hand, unite companies that operate at different levels of production or distribution, as is the case with AT&T and Time Warner. Think of Toyota or Apple buying one of their many parts suppliers. These deals don’t increase concentration in an industry because they don’t combine head-to-head rivals.