A U.S. District Court judge approved AT&T's proposed acquisition of Time Warner June 11 with no conditions attached, effectively denying the U.S. Department of Justice's antitrust challenge to the transaction. While the DOJ has the opportunity to appeal the decision, the transaction will undoubtedly fuel a wave of mergers and acquisitions activity across industries and likely facilitate future vertical mergers, CNBC reports.
In its argument to block the proposed transaction, the DOJ claimed AT&T could potentially abuse its market share and charge rival distributors more for Time Warner content. However, by denying the DOJ's challenge, the court's decision has paved the way for potential vertical mergers, during which one company merges with another in its supply chain.
"Now it's open season for vertical mergers," Chris Sagers, the James A. Thomas Distinguished Professor of Law at Cleveland State University's Cleveland-Marshall College of Law told CNN. "The fact is that [vertical M&A has] gotten a little easier and we'll see a big flurry of deals."
Here are 5 experts' thoughts on how the deal may affect M&A across industries:
1. Charles Rhyee, managing director and senior research analyst at financial services firm Cowen, told CNBC the decision "bodes well" for CVS Health's pending $69 billion acquisition of Aetna, which the companies announced last year.
RBC Capital Markets analyst George Hill similarly told Bloomberg: "The court decision to allow the media merger to proceed will likely be interpreted to mean similar vertical mergers would be permitted in the healthcare space. We would expect to see deal spreads narrow going forward."
2. Comcast and Disney have both expressed interest in acquiring several assets belonging to Twenty-First Century Fox, including various cable networks and 39 percent of British satellite TV provider Sky Plc, through a vertical merger. The companies will reportedly kick off a bidding war for the media conglomerate June 13, according to a second CNBC report.
"[The AT&T-Time Warner] decision could serve as a 'green light' for other potential M&A, including Comcast's ongoing pursuit of Fox," an analyst for financial services firm UBS told Reuters.
3. Telecommunications providers Sprint and T-Mobile announced plans to merge in April, and will likely argue their case along the lines of AT&T and Time Warner — that combined they will have more market power. However, Henry Wu, a partner at law firm Constantine Cannon, told Business Insider extrapolating on the fates of other vertical mergers, such as the proposed Sprint-T-Mobile deal, may be ill advised because the judge's decision in the AT&T-Time Warner case was based solely on the evidence at hand. Other similar mergers will likely be examined on a case-by-case basis, he added.
4. A second large healthcare merger in the works involves the proposed acquisition of Express Scripts by Cigna for $54 billion, which the companies announced in March. The companies said they sought to merge for several reasons, including "the potential entry into the healthcare industry of significant new participants," the companies said in a May 16 Securities and Exchange Commission filing.
However, several Evercore ISI Research analysts told The Street the proposed Cigna-Express Scripts deal differs materially from the AT&T-Time Warner transaction.
"Although the government in both cases will argue that the deals would result in higher consumer costs, PBM services may be viewed as more replaceable and interchangeable than TV content, which is differentiated by channel or program, and the efficiencies and cost savings of medical/pharmacy benefit integration may be more demonstrable as evidenced by CI's studies and data points on the topic," the analysts said.