On Monday, November 6, AT&T C.E.O. Randall Stephenson was in Washington, D.C., for a meeting with Makan Delrahim, the Justice Department’s new anti-trust chief, who was confirmed by the Senate in late September. They were there to discuss AT&T’s long-awaited purchase of Time Warner, which has been in the final stages of a protracted regulatory review. According to three people briefed on the conversation, Delrahim told Stephenson that if AT&T wanted the D.O.J. to green-light the $85 billion mega merger, he would have to either sell Turner Broadcasting, the parent entity of CNN, which AT&T would acquire as part of the deal, or sell DirecTV, the satellite provider AT&T acquired in 2015.
To Stephenson, both choices were thoroughly unpalatable: ditch the company you’ve spent the past two years painstakingly integrating into your business, or ditch the portfolio of premium broadcast brands—which in addition to CNN includes TBS, TNT, N.B.A. and March Madness games, and other prominent television assets—that accounts for more than half of the profits of the company you’ve spent the past year gearing up to own. Stephenson’s response, according to the people briefed on the interaction with Delrahim, was more or less: We’ll see you in court. (The Financial Times first reported on Wednesday, citing three unnamed sources with knowledge of the negotiations, that “AT&T has been told by the U.S. Department of Justice that it needs to sell CNN to get its $84.5bn acquisition of the media company approved.”)
Few people I spoke to at AT&T or Time Warner believe that anti-trust concerns are driving this hard bargain. Rather, they believe it’s about politics, and CNN in particular. CNN is media-enemy No. 1 for President Donald Trump, who had expressed his distaste for the AT&T-Time Warner merger early on. He even threatened to kill it, and had reportedly toyed with the idea of using CNN as a bargaining chip. The Justice Department’s late-stage requirements for the merger seemed to confirm people’s fears.
In response to an account that was circulating on Wednesday, apparently from the Department of Justice, that AT&T had offered to divest itself of CNN to let the deal go through, Stephenson, through a spokesperson, was unequivocal. “Until now, we’ve never commented on our discussions with the D.O.J. But given D.O.J.’s statement this afternoon, it’s important to set the record straight,” he told Vanity Fair. “Throughout this process, I have never offered to sell CNN and have no intention of doing so.” Stephenson is scheduled to appear at The New York Times’s DealBook conference tomorrow. On-air talent at CNN has been informed that there will be extensive merger coverage on Wednesday evening. Time Warner declined to comment. A D.O.J. spokesman said: “The Department is committed to carrying out its duties in accordance with the laws and the facts. Beyond that, the Department does not comment on any pending investigation.”
Inside CNN, the mood was as charged as you’d expect it to be. “This is political, this is unprecedented, and the only explanation is political pressure from the White House,” a CNN employee told me. “There’s a contingent here that felt like, you have a litigious, vindictive commander in chief with the opportunity to take a poke at a network he believes covers him unfairly. How did we think this is gonna end? It’s outrageous.” Another insider told me that people throughout the Turner portfolio are “freaking out.” They’d finally gotten their heads around the idea that they would soon be owned by AT&T, a Dallas-based operation with no media or entertainment experience. Today’s news “caught 99 percent of the people at the company by surprise,” the source said. “Everybody’s like, what the fuck?”
The first curveball had come on November 2, in the form of a Wall Street Journal story reporting that the D.O.J. was “laying the groundwork for a potential lawsuit challenging” the merger, which would marry a telecom titan that owns more than 100 million smartphones, and the Midtown Manhattan-centered parent entity of media and entertainment stalwarts including CNN, HBO and Warner Bros., whose premium content offerings are ripe for its suitor’s mobile devices.
Both parties were blindsided by news of the potential lawsuit, according to sources familiar with the matter—“shocked,” is how one of them put it—but no one was hitting the panic button just yet. Of course, there was always the specter of interference from CNN-hating Big Bad Wolf Trump. But surely, people involved in the deal and those watching it closely both figured, the leak about the possible lawsuit—to a newspaper owned by Trump ally Rupert Murdoch, it’s worth noting—must just be a negotiating tactic as the two sides go back and forth to clear the final regulatory hurdle. Or maybe it was just that Delrahim, fresh on the job, didn’t want it to seem like he was going to just rubber stamp a year’s worth of work that had taken place prior to the start of his tenure. “That’s the best-case scenario,” a person close to the deal told me earlier this week. “The worst case is that they’re going to try to extract something.”
Indeed, that seemed to be the state of play by Wednesday morning, when Reuters reported that the D.O.J. was “pushing AT&T Inc for ‘structural remedies’ in order to satisfy antitrust concerns.” (As Reuters noted, “structural remedies” is anti-trust jargon for getting rid of assets.) The news came shortly after AT&T Chief Financial Officer John Stephens told the audience at a Wells Fargo conference in New York, “We are in active discussions with the D.O.J. Those are continuing on. I can’t comment on those discussions. But with those discussions, I can now say that the timing of the closing of the deal is now uncertain.”
Amplifying people’s worries about meddling was the fact that Delrahim had initially signaled that the acquisition wouldn’t be problematic, in his opinion as an anti-trust expert. Last fall, when the deal was announced, Delrahim, then a Pepperdine University law professor, said during a television interview that he didn’t see any major problems with it: “This is what we would call a vertical merger—content with distribution, rather than two competitors merging. . . . The sheer size of it, and the fact that it’s media, I think will get a lot of attention. However, I don’t see this as a major antitrust problem.”
AT&T is confident they would prevail in court because there isn’t strong precedent for blocking vertical mergers like this one. (In other words, an apple company acquiring a banana company, as opposed to two apple companies or two banana companies merging.) One person close to the deal posited to me that the D.O.J. could maybe try to make a case that common ownership of both Turner and DirecTV would create a scenario whereby Turner could leverage DirecTV against other distributors to seek higher rates for them. But as David Faber noted on CNBC Wednesday morning, “In 40 years, there has not been a vertical integration that has been blocked. Forty years. . . . Politics seems to at least be something people want to talk about when it comes to the perceived opposition from the Department of Justice.”
Multiple sources I spoke with noted Delrahim’s apparent 180, and questioned whether he was being strong-armed, telling me it would be a bad look for him to go to court and lose. “If you’re the new head of the D.O.J. and the first thing you do is lose a major lawsuit, that’s a major embarrassment," one of these people said. "If this is political and it really is about CNN, the media is just going to slaughter the Trump administration. It would be a bad political move, and it would be really bad for AT&T to agree to that.”
This article has been updated.
