Will Justice Department’s Lawsuit Derail Deal-Making Boom?

The Trump administration’s lawsuit to block AT&T’s takeover of Time Warner not only threatens an enormous corporate deal. It also has ignited a guessing game on Wall Street about whether the booming market for mergers and acquisitions is about to be derailed.

Roughly $2.78 trillion worth of deals have been announced worldwide so far this year, according to Thomson Reuters. While that is down 2.7 percent from the same period last year, 2017 ranks as the third-best year for mergers over the past decade.

But the Justice Department’s lawsuit on Monday to block the $85.4 billion AT&T-Time Warner deal could rapidly cool the deal-making climate.

The fundamental question is this: Is the lawsuit taking aim at one particular transaction, or is it a signal that the White House is opposed to corporate consolidation in general? After all, President Trump specifically denounced the deal on the campaign trail last year.

“Is it idiosyncratic, or a different perspective on what the regulatory framework to going to be? We don’t know yet,” said Blair Effron, a co-founder of Centerview Partners, a boutique bank that has been an adviser on many deals this year.

On Tuesday, Mr. Trump weighed in again on the deal. “Personally, I’ve always felt that that was a deal that’s not good for the country,” he said outside the White House. “I think your pricing is going to go up.”

Nobody expects the lawsuit to shut off the deals spigot. Big companies still have reasons aplenty to pursue mergers and acquisitions — not least, the rapid, technology-fueled transformations of many industries — and the possibility of government opposition is just one factor influencing their decisions.

“This event does not eliminate the need for transformational events or scale in these industries,” said Aryeh Bourkoff, the founder of the investment bank LionTree and an adviser on media deals.

Yet Mr. Bourkoff and others said the specter of government opposition to mergers had begun to weigh on deal makers’ minds. Investment bankers said they were especially wary of mergers that affected big consumer brands or could lead to job losses.

The Justice Department lawsuit, Mr. Bourkoff said, “has created a heightened level of uncertainty in the deal environment.”

Few, for example, believe that Comcast — which is in discussions to buy significant portions of 21st Century Fox — would be allowed to complete that potential deal unless the Justice Department was defeated in its AT&T lawsuit.

In its suit, Justice Department lawyers argued that AT&T would amass enough power by acquiring Time Warner to undermine competitors and raise prices for consumers. But on a conference call on Monday, a Justice Department official argued that the regulator was not reflexively opposed to so-called vertical mergers, which combine companies from two different industries, as a union of AT&T and Time Warner would do.

Mr. Effron said there still were more compelling reasons to pursue mergers than not. But, he added, there is now a greater need to “factor in the downside.”

Content originally published on https://www.nytimes.com/2017/11/21/business/dealbook/justice-department-deal-making.html by MICHAEL J. de la MERCED and ANDREW ROSS SORKIN