Perhaps the biggest announced deal of 2016 isn’t just an obvious place to start speculating about M&A in the year ahead. It’s also the likely place where 2017 ends, with other major players like Verizon and Disney pushed to consider content or distribution acquisitions of their own, despite the sustained posturing of the Trump administration.
A document filed last week with the SEC makes it clear that AT&T (NYSE: T) and Time Warner (NYSE: TWX) still anticipate stronger push-back on their $85.4 billion merger from the Federal Communications Commission, which can stop the deal if it finds it to be against the "public interest," than the Department of Justice, which would have to prove that the deal is, in fact, anti-competitive. The FCC's review process can involve a lengthy public comment period in order to determine whether any harm to the public interest is involved with a deal. Both AT&T and Time Warner not only want to avoid that process, they also think they know how.
So, what would an example of harm to the public interest in this case be? The transfer of too many FCC licenses granted to Time Warner ending up in AT&T's hands could fit the bill. But the documents filed Thursday state that Time Warner currently anticipates "it will not need to transfer any of its FCC licenses to AT&T in order to continue to conduct its business operations after the closing of the transaction.” Any licenses that would require a transfer from target to acquirer could be divested to other broadcasters, a process Time Warner has been engaged in for awhile now, according to Bloomberg.
But neither regulatory entity was likely to block this deal anyway. Comcast-NBCUniversal’s hookup about six years ago set a precedent for—though, not to be mistaken for an endorsement of—content and distribution coming together. That kind of integration between separate verticals doesn’t fit as squarely within the purview of anti-trust considerations, which really are better equipped to scrutinize consolidation within industries much more rigorously than consolidation between them using the Herfindahl-Hirschman Index, among other measurements of market competition.
The effects of the AT&T-Time Warner deal are already playing out in Rupert Murdoch’s $14.6 billion bid to buy European pay-TV service Sky in December and the announcement that CBS and Viacom aren’t coming back together—for now. Further consolidation in media looks likely next year, however. And in the US, Verizon (NYSE: VZ) will be the most interesting player on the distribution side to watch. Whether it uses the cybersecurity breaches at Yahoo (NASDAQ: YHOO) as grounds for a discount, or, more damning for the internet antiquity, as grounds for walking away from the $4.8 billion purchase, a big deal for a content provider such as, say, DISH Network (NASDAQ: DISH) should be all the more likely as Verizon looks to further increase its presence in digital advertising.