A federal judge’s ruling in favor of AT&T‘s acquisition of Time Warner on Tuesday gave affirmation to dealmakers that regulatory authorities are willing to factor in the impact of new technology into their view of the regulatory landscape.
For all the industries that have been upended by technology, which has changed not only how we watch TV, but also how we eat, shop, travel and receive medical care, the decision allowed for a giant sigh of relief.
“If the decision had gone the other way, it would have been a big concern for any company considering M&A in a sector that is evolving. It also is a real positive that the court recognized how rapidly the media sector is changing,” said Larry Hamdan, Barclays’ head of M&A Americas.
Companies across all industries, including aerospace, retail and health care — are pursuing deals as an antidote to the technological disruption that are turning their industries upside down. Retailer CVS Health last year announced its $69 billion deal to purchase health insurer Aetna as Amazon eats into its retail business. Technology company Intel bought car-camera company Mobileye as the proliferation of autonomous cars looks to become an increasing reality.
The rationale behind many of these deals is that technology has created a new normal and mergers and acquisitions are the fastest way to react. Had the AT&T-Time Warner deal been blocked, it would have cast uncertainty on regulatory acceptance of that new normal.
Several of these deals are — like AT&T’s deal to acquire Time Warner — vertical acquisitions: the purchase of a supplier, not a competitor. CVS stock was up Wednesday morning after Tuesday’s ruling.
“All industries are being affected by change, disruption and technology … what the court is trying to say is: ‘we’re not just going to look at, not just the historic picture …in a vacuum.’ Instead, ‘we are going to take into account what’s happening in the real world,'” said Francis J. Aquila, a partner at law firm Sullivan & Cromwell.
Indeed, in the court’s ruling, U.S. District Court Judge Richard Leon touted the innovation and evolution that could come from the AT&T-Time Warner tie-up, a benefit that other companies currently pursuing such deals are also highlighting.
“AT&T and Time Warner expect to see the gains in innovation — particularly by way of a new programmatic advertising platform — that motivated the merger in the first place,” wrote Leon.
To be sure, several dealmakers who spoke with CNBC, some of whom did so on the condition of anonymity, said the ruling is unlikely to spur deals that were not otherwise planned. Its impact is still likely to be largest in media and health care; the former is most similar, the latter tends to have deals that are larger and closely scrutinized.
Most dealmakers were already expecting the deal to be approved, making the ruling a validation, not a surprise.
Still, the court’s strong language in favor of AT&T-Time Warner may make the Department of Justice more cautious about fighting any merger on weaker grounds.
“The parties have waged an epic battle, under extremely restricted deadlines, to litigate and try this historic vertical merger case,” wrote Leon.
“I hope and trust that the Government will have the good judgment, wisdom, and courage to avoid such a manifest injustice. To do otherwise, I fear, would undermine the faith in our system of justice of not only the defendants, but their millions of shareholders and the business community at large,” he later added.