AT&T battled the DOJ to buy Time Warner, only to spin it out again three years later

Just three years ago, AT&T finally closed its $85 billion deal to buy Time Warner, ending a protracted battle with the Justice Department under then-President Donald Trump, which sought to block the deal.

Now it’s spinning off its media assets from the deal to combine with Discovery to create a content giant. If the deal is approved by regulators, AT&T will receive $43 billion in cash, debt and WarnerMedia’s retention of some debt, while effectively undoing its earlier merger. The companies said they expect the deal to close in the middle of 2022.

The deal marks a stark change in direction for AT&T after it spent a year fighting to buy Time Warner to create a vertically integrated empire of both content and distribution. The company that fought so hard for brands such as CNN, HBO and Warner Bros. just a few years ago is now ready to let them go.

The shift highlights how fast the media landscape has changed, as people switch away from pay TV and toward streaming video services in record numbers. The competition for those subscribers is fierce, underscored by the launch of Disney’s fast-growing platform and Netflix‘s continuing growth.

Meanwhile, AT&T faces new competition in its core business, as T-Mobile and Sprint merged in 2020 to form a more formidable competitor alongside Verizon, and all three companies are racing to roll out faster 5G service to subscribers.

AT&T CEO John Stankey alluded to the changed environment in an interview on CNBC’s “Squawk on the Street” on Monday.

“Things have changed a bit since we did the transaction,” said Stankey, who led AT&T’s Entertainment Group at the time of the merger and was later named CEO of WarnerMedia before taking on his current role. “Despite the fact that we are doing this relatively quickly, shareholders have still done reasonably well with this decision.”

Here’s a look back at the long road it took for AT&T to acquire Time Warner (since renamed WarnerMedia):

In October 2016, AT&T announced its plans to buy Time Warner. Randall Stephenson, then the CEO of AT&T, called the pair “a perfect match” in a statement accompanying the release.

AT&T touted the “complementary strengths” of the two businesses, which it said would allow it to deliver customers premium content from Time Warner to every screen through its network.

“A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that,” Stephenson said in a statement at the time. “We intend to give customers unmatched choice, quality, value and experiences that will define the future of media and communications.”

AT&T positioned the deal as a win for customers, saying it would give them new choices and offer more relevant content and advertising because of its insights across its network.

But Trump and his Justice Department didn’t see it the same way.

As a candidate, Trump bashed the AT&T-Time Warner deal shortly after it was announced, saying his administration would not approve the deal “because it’s too much concentration of power in the hands of too few.”

Once elected, Trump held to that promise. Though some pundits had speculated after the election that a Republican administration would still be positive for the deal’s prospects, Trump’s Justice Department later disproved that thinking by filing a lawsuit to block the merger in November 2017.

Many Democrats and antitrust experts feared Trump’s opposition to the deal influenced the DOJ’s lawsuit. Trump made no secret of his distaste for Time Warner-owned CNN, which he often positioned as his foil when slamming what he called the “fake news.”

The DOJ’s top antitrust official at the time, Makan Delrahim, has repeatedly denied that Trump held any sway over the decision to seek to block the merger. He told CNBC as recently as January that he “never” spoke with Trump or heard from White House officials about the case during the investigation or trial.

When the DOJ sued to block the AT&T-Time Warner merger in 2017, it claimed the combination was unlawful and would ultimately harm consumers by raising prices.

Stephenson said on a conference call at the time that the suit would have “nothing but a freezing effect on commerce.”

The lawsuit came shortly after Delrahim had been approved by the Senate to lead the DOJ’s Antitrust Division. But a year before filing the lawsuit to block the case, Delrahim had told a Canadian news outlet that he didn’t see the combination “as a major antitrust problem.” He did acknowledge at the time there could be some concerns about a distributor owning content and its impact on other distributors.

In June 2018, U.S. District Court Judge Richard Leon ruled that the deal was legal and placed no restrictions on the merger’s close. Leon wrote that the government failed to meet its burden to prove the deal would substantially lessen competition.

The DOJ dropped the suit after losing on appeal in February 2019.

Delrahim, for his part, told CNBC earlier this year that he still believes a different judge might have handed him a win.

“Sometimes different judges could reach different conclusions on the same exact set of facts. So I’m convinced we might have had a different outcome if we had a different judge in that case,” he said. 

AT&T and Time Warner officially closed their merger in June 2018, prior to the DOJ’s appeal.

Since then, AT&T changed the name of the media business to WarnerMedia and shuffled around staff and streaming services, including simplifying HBO’s streaming offerings.

Still, HBO has lagged behind in subscriber count compared with rivals like Netflix and Disney+. HBO and HBO Max reportedly have about 64 million global subscribers, while Netflix has about 208 million and Disney+ more than 100 million in about a year and a half of service.

After spending so much time fighting to acquire Time Warner, AT&T’s decision to let those assets go is an acknowledgement of the new realities of the streaming wars, which seems to reward services with sprawling content offerings like Netflix’s and Disney’s deep archive of beloved classics.

“My job is to make sure this came out on balance right for the AT&T shareholder in aggregate,” Stankey told CNBC Monday, “and I think we did that here.”

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