Telecommunications giant AT&T and multimedia entity Time-Warner have contemplated an $85 billion merger for some time, and the deadline for completing the merger was June twenty-first of this year. See, e.g., Marcy Gordon, “AT&T merger with Time-Warner Ok’d by judge,” Chicago Sun-Times, Jun. 12, 2018. The Department of Justice (DOJ) instituted litigation to block the merger, arguing that the action contemplated would be anti-competitive and drive prices up. See id. A federal district court recently upheld the merger, and expert witness testimony was utilized by both sides to explain and bolster each party’s position. See id. This article examines the AT&T-Time Warner lawsuit and how expert witnesses play an integral role in litigation over mergers and related matters.
As one business and marketing analyst noted, “The impact from this decision will have wide-reaching ramifications across the telecommunications, media, and tech industry for decades to come.” Id. Companies considering mergers or acquisitions and members of the legal community should pay attention to the recent ruling and assess how the arguments played out. By understanding the court’s rationale, businesses may be able to better make major financial decisions and resolve potential challenges.
The AT&T-Time Warner case has very much been a battle of the experts. For example, to further the claim that the merger would lead to higher prices, the DOJ relied upon expert testimony that concerned “the price increases to the increased leverage that AT&T-Time Warner will have in the marketplace, and that one of its subsidiaries, the Turner networks, will be able to demand and get higher rates for its channels in carriage negotiations from AT&T’s rivals.” Ted Johnson, “AT&T-Time Warner Trial: Judge Queries DOJ Expert Witness on Prediction of Merger Behavior,” Variety, Apr. 11, 2018. Prior to ruling on the matter, the district court judge asked a number of questions of the DOJ’s leading witness, in an attempt to determine whether the government’s arguments were evidence-based or merely assumptions. See id.
The defendants challenged the DOJ expert’s economic model by producing witnesses of their own. Defense experts claimed the plaintiff’s model was problematic and did not take into account empirical data regarding a similar recent vertical merger. See, e.g., Ted Johnson, “AT&T-Time Warner Trial: Expert Witness Blasts DOJ Claims of Merger Harms,” Variety, Apr. 12, 2018.
Ultimately, the district judge found in the defendants’ favor, and that decision underscores the importance of expert testimony. The holding expressed that “the government’s evidence is too thin a reed for this court to rely on.” Marcy Gordon, supra. While the judge declared the DOJ’s argument a strong one, he was unconvinced by the evidence provided to substantiate the claim that the merger would lead to major price increases. See id.
This recent ruling is important for several reasons and underscores the crucial role experts play in analyzing whether a merger should be approved by a court. Moreover, the case is likely to be cited as a precedent and considered by future businesses considering mergers. The government should also have learned a lesson regarding the standard expert evidence will be held to, and if the DOJ wishes to block such deals in the future, it should bolster its claims with the precision and data that the district court found lacking.
There are several takeaways from the court’s ruling in the AT&T-Time Warner case. First, attorneys in the mergers and acquisitions field should retain the best experts they can find early and use that expertise to guide decision-making. Second, the case illustrates a current trend of courts applying more scrutiny to efforts to block large mergers. Parties on both sides should be aware of and adapt to this trend. Because the case may be appealed, the issues that arose may be resolved all over again, and expert testimony will undoubtedly play an important role in a prospective appeal. For members of the legal profession, the lesson is simple: courts in this area will rely upon and challenge expert witnesses, and lawyers should be prepared and respond accordingly. Such preparations may, in turn, help attorneys and experts to achieve their clients’ desired results.