Why AT&T-Time Warner Win Opens the Dealmaking Gates

For decades, U.S. antitrust enforcers had worried mostly about mergers between direct competitors that might lead to higher consumer prices. They were less bothered by deals between companies that are in related businesses but that don’t compete directly. The Justice Department sought to change that when it tried to block the $85 billion merger between AT&T Inc. and Time Warner Inc. The challenge raised the possibility that similar types of combinations could hit a roadblock, slowing down the pace of dealmaking. But a June 12 federal court ruling allowing the two companies to join could open the floodgates for more of these so-called vertical mergers.

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.