WSJ : U.S. Weighs Suit Against AT&T’s Deal for Time Warner

U.S. Weighs Suit Against AT&T’s Deal for Time Warner
Justice Department prepares for litigation if it can’t agree with companies on terms that would satisfy antitrust concerns

WASHINGTON—The Justice Department is considering a lawsuit challenging AT&T Inc.’s T -0.63% planned acquisition of Time Warner Inc. TWX -4.44% if the government and companies can’t agree on terms that would satisfy antitrust concerns, according to people familiar with the matter.

The department’s antitrust division is preparing for litigation in case it decides to sue to block the deal, these people said. Simultaneously, the department and the companies are discussing possible settlement terms that would lead to the deal winning government approval with conditions attached. The two sides, however, aren’t yet close to an agreement, the people said.

The outcome could go either way and the timing of any decision remains uncertain, the people said.

Most outside observers have believed the deal, valued at $85 billion when it was announced last year, was likely headed for government approval. The recent developments aren’t necessarily an indication that the deal is in trouble, but they do suggest more regulatory uncertainty for the companies than many analysts anticipated.

“Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market,” an AT&T spokesman said. “While we won’t comment on our discussions with DOJ, we can say that this transaction should be no exception.”

A Time Warner spokesman declined to comment.

AT&T executives have continued to say the deal is on track to close by the end of the year, with financing lined up and all government authorities on board except for the Justice Department.

A department spokesman declined to comment.

It isn’t uncommon during major government merger investigations for antitrust officials to work on two tracks, one that prepares for litigation and another that works toward a settlement allowing the merger. The antitrust division in recent years has placed renewed emphasis on being ready for a lawsuit in case settlement talks break down.

If the Justice Department were to sue to block the deal, that wouldn’t be the end of the matter unless the companies abandoned their plans. The department would have to present its case to a federal judge and prove that the deal would likely harm competition.

The department has spent a year investigating whether allowing AT&T to buy Time Warner would hurt competition in the media and telecommunications businesses.

The deal would combine AT&T’s communications infrastructure, including its cable service and DirecTV satellite service, with Time Warner’s broad media portfolio, which includes channels such as CNN, TBS and HBO as well as the Warner Bros. studios.

The company argues the deal would help consumers by making film and TV more affordable. AT&T points to its current moves to lower prices for video content, such as offering discounts for DirecTV Now, an online pay-TV service.

TV programmers are among those who voice concern about the deal, arguing that AT&T’s reach—more than 90 million wireless customers and 20 million satellite subscribers—if added to control of some of the most sought-after programming, would greatly disadvantage rival media. Some consumer advocates argue that giving AT&T that much control over both content and its distribution could lead to higher prices and fewer options for viewers.

The Justice Department’s antitrust review reached a new level in recent weeks after the Senate in late September confirmed Makan Delrahim to lead the Justice Department’s antitrust division. President Donald Trump nominated Mr. Delrahim in April, but the Senate moved slowly on his confirmation, leaving him on the sidelines while other Justice Department antitrust staffers scrutinized the AT&T-Time Warner transaction. Mr. Delrahim is now involved in the deliberations, people familiar with the matter said.

AT&T officials have met with Justice Department officials in recent weeks, and the department separately has been talking to third parties who are concerned about the deal, such as some rival content providers, according to people familiar with the discussions.

It could be a challenge for the Justice Department to mount a case against the deal because the combination of AT&T and Time Warner is a so-called vertical merger, combining companies that represent different links of the supply chain.

Antitrust officials rarely sue to block vertical combinations outright, because they don’t typically raise the same kinds of concerns as mergers of head-to-head competitors. The latter are easier to challenge, because it is easier to prove consumer harm when one company seeks to combine with another that has been a significant competitor.


The AT&T-Time Warner deal has some similarities to Comcast Corp.’s 2011 takeover of NBCUniversal, a deal the Justice Department allowed under the Obama administration after Comcast agreed to a range of restrictions on its future behavior. For example, Comcast agreed to make video content available to online competitors of Comcast’s cable-television services.

Mr. Delrahim, however, isn’t a big supporter of using so-called behavioral remedies to address concerns about a merger, as he stated last Friday in a public appearance at New York University. Antitrust observers took notice of the remarks and have wondered whether his views would make it harder for AT&T to offer concessions the Justice Department would find acceptable.

Conservative antitrust enforcers in general don’t like behavioral remedies, on the theory that the Justice Department shouldn’t be a regulator of future business conduct.

The more traditional way for merging companies to address government antitrust concerns is to sell off assets to competitors to ensure the market stays competitive. It isn’t clear whether AT&T has offered any asset sales so far or whether the Justice Department has particular assets in mind that it would like AT&T to divest as a condition for government approval.

Hanging over the Justice Department’s review are comments Mr. Trump made during last year’s presidential campaign in which he said AT&T shouldn’t be allowed to buy Time Warner because it would give too much power to one company. The remarks, part of the Trump campaign’s populist message, were unusual because recent presidents and candidates generally haven’t taken positions on specific mergers, and the Justice Department usually conducts merger reviews independent of political influence from the White House.

Democrats have expressed concern about Mr. Trump’s potential influence, but some have simultaneously urged the Justice Department to block the AT&T deal.

During his confirmation process, Mr. Delrahim, who was a deputy White House counsel before being confirmed to the Justice Department post, told senators that the White House hasn’t lobbied him on AT&T. At his confirmation hearing in May, he said that politics wouldn’t play a role in his antitrust enforcement decisions.

FT : EN+ to list at lower end of proposed range

EN+ to list at lower end of proposed range

Investors say there was caution over corporate governance and links to US scandal

EN+, the hydropower-to-aluminium conglomerate, has priced its London listing at the lower end of a proposed range of values, suggesting that Russia’s first IPO in London since the 2014 invasion of Crimea has struggled to attract high levels of interest from international investors.

The $14 share price, which raises $1bn for En+ at a valuation of $7bn, points to worries about owner Oleg Deripaska’s corporate governance and links to a defendant in a US investigation into Moscow’s role in US president Donald Trump’s election campaign, bankers and fund managers told the Financial Times.

“The valuation is twice what it should be,” said one fund manager who was approached to invest in the deal. “They should have a discount for Russia, they should have a discount for the leverage, and they should absolutely have a discount for corporate governance.”

Monday’s filing of charges against three former aides to Mr Trump — including former campaign manager Paul Manafort, who has longstanding ties to Mr Deripaska — added to investor nervousness over the listing, three of the people said.

The IPO was fully subscribed, with the $14 per global depositary receipt (GDR) price at the bottom of the range of between $14 and $17 issued earlier. EN+ declined to comment.

In addition to the $1bn raised in the London listing, EN+ has an agreement with CEFC China Energy to buy $500m worth of shares. Qatar’s sovereign welfare fund has discussed investing in the free float, while commodity trader Glencore is to convert its shares in aluminium producer Rusal to En+ stock. After the Glencore share exchange, EN+ will own 56.9 per cent of Rusal.

The Rusal stake has also proven a problem for the IPO of En+ as Rusal shares have fallen by more than 17 per cent since the listing was announced in October.

“And people expect a discount on top of that. You’re one step removed from the main asset,” said a fund manager who considered participating in the deal.


En+ is part of Russian tycoon Oleg Deripaska's industrial empire © Bloomberg
Mr Deripaska’s connections to Mr Manafort have become controversial over the past year. The industrialist employed Mr Trump’s former campaign manager a decade ago on a $10m a year retainer for a number of years, and the two men attempted a failed business venture together.

Mr Manafort and his business partner Richard Gates this week pleaded not guilty to charges of illegally laundering $75m of funds through offshore accounts.

“Folks are nervous enough about [Mr] Deripaska and governance as it is,” said one fund manager who has agreed to buy shares in the listing. “You have a bunch of people who would get involved if it comes cheap enough, but may now figure it’s just not worth the headache.”

A spokeswoman for Mr Deripaska said that there was no communication between the two men “during, after, or in the run-up to the 2016 presidential election”, and that the Russian had not communicated with Mr Manafort “for years prior to 2016”.

FT : UK construction sector returns to growth

UK construction sector returns to growth
Increase in house building boosts sector, PMI survey shows

The UK’s construction sector emerged from a technical recession in October, but optimism about the future fell to its lowest level for almost five years, according to a survey of purchasing managers working in the industry published on Thursday.

Official economic growth data, published last week, showed that Britain’s construction sector contracted for two consecutive quarters but the latest IHS Markit/CIPS PMI indicates that it has returned to growth.

The PMI increased to 50.8 in October from 48.1 in September. A figure above 50 indicates growth. Analysts were expecting the survey to remain unchanged during the month.

British construction has struggled due to a decline in commercial office building during the past year, and a number of existing big infrastructure projects have come to an end. However, housebuilding has been boosted by the government’s help-to-buy equity loan programme.

Tim Moore, associate director at IHS Markit, said: “Greater house building was the sole bright spot in an otherwise difficult month for the construction sector. Sustained declines in civil engineering and commercial activity meant that large areas of the building industry have become stuck in a rut.

“The recent soft patch for civil engineering activity has been the most severe for around four-and-a-half years, linked to a shortfall of new contracts to replace completed work on infrastructure projects.”

The survey showed that confidence about the rate of activity in the year ahead dropped to its lowest level since December 2012. Respondents said they were worried about the lack of new projects in the pipeline.

The decline in infrastructure spending is one of the most concerning aspects of the survey, said Noble Francis, economics director at the Construction Products Association.

“We keep hearing government announcements and plans for infrastructure spending of hundreds of billions of pounds, yet the reality on the ground is that the delivery of infrastructure projects and programmes doesn’t match the government’s announcements, especially within roads and rail construction,” he said.

An analysis of investment spending by the Office for National Statistics, also released on Thursday, found that the UK spent the lowest proportion of national income on investment of any developed economy.

Between 1997 and the second quarter of 2017 the UK spent an average of 16.7 per cent of gross domestic product on investment. The second lowest country examined by the ONS was Italy, which spent 19.6 per cent of national income on investment.

This means the UK had the lowest proportional spending of any country in the Organisation for Economic Cooperation and Development, a group of rich countries.

Most investment spending in the UK is in the construction sector, either on office blocks, infrastructure or housing. The remainder is on machinery, transport equipment and intellectual property products, such as software.

The ONS noted that the UK’s specialism in services means it would expect less to be spent on investment than in countries where there is more capital-intensive manufacturing. The figures have also been criticised by economists for not capturing certain kinds of research and development spending in professional services.

“Analysing assets specifically, more advanced economies tended to invest more in intellectual property products and dwellings rather than machinery, equipment and buildings,” the ONS said.

“However, stronger manufacturing economies in the G7 still invest a relatively large proportion in these assets, whereas the UK does not.”

Government investment spending was the second lowest in the G7 group of rich countries during the period analysed. The UK spent 2.4 per cent of national income on government investment, compared with 2.2 per cent in Germany.

But Britain’s private sector spent the least on investment of any rich country, just 14.3 per cent of GDP, compared with 18.3 per cent of GDP by the private sector in Germany.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • ESIO +30.3%, NBIX +19.2%, TACT +12.2%, WSTL +11.3%, FMSA +11.2%, PEI +9.7%, SBRA +9.2%, CBPO +8.4%, IMDZ +7.7%, LB +7.5%, (October comps of +2% vs lsd decline prior guidance; sees Q3 EPS to be at the high end of its guidance and reiterates FY 17 EPS guidance of $3.00-3.20; expects Q3 sales of $2618 mln vs $2568 mln consensus), KMT +7.3%, QDEL +6.3%, EXEL +6.1%, ANSS +5.5%, WTI +5.4%, CZR +5%, APRN +4.7%, AN +4.6%, CFMS +4.5%, ABC +4.4%, BLDP +4.1%, HOS +4.1%, CKH +3.7%, RWLK +3.6%, MYRG +3.5%, ZAGG +3.5%, ZAGG +3.5%, SHAK +3.5%, ULTI +3.4%, CMPR +3.3%, HBM +3.2%, GLUU +3.1%, JUNO +3.1%, HIIQ +3.1%, AREX +2.9%, INAP +2.9%, NMIH +2.8%, TNH +2.7%, DLPH +2.7%, BABA +2.6%, CVE +2.6%, DXCM +2.5%, CF +2.5%, SWM +2.4%, SRC +2%, ALL +1.9%, RGLD +1.7%, ARRS +1.6%, AME +1.6%, SRCI +1.5%, ZUMZ +1.4%, (October comps of +6.6% vs +10.2% year ago and +9.3% last month), ADP +1.3%, BOJA +1.2%, EQIX +1.1%, FLT +1.1%, CI +1.1%, DWDP +1.1%, QCOM +0.9%

M&A news:

  • OCRX +65% (to be acquired by Mallinckrodt (MNK) for an upfront payment of $1.52/share and a CVR for up to $2.58/share)

Other news:

  • XTNT +14.7% (enters into a distribution agreement with curasan, ' adding a premium line of synthetic scaffolds to its biologics portfolio' )
  • DRNA +10.8% (Dicerna Pharmaceuticals and Boehringer Ingelheim announce a research collaboration and license agreement to discover and develop novel GalXC RNAi therapeutics for the treatment of chronic liver diseases)
  • TURN +8% (after reporting NAV per share of $2.68 as of September 30, 2017; third consecutive quarter of NAV growth )
  • ABY +6.7% (Algonquin to purchase 25% interest in Atlantica Yield from Abengoa at price of $24.25 per share, $2,430 million implied total equity value)
  • HTGM +4.9% (enters into second statement of work with QIAGEN)
  • RWLK +3.6% (announces that Germany's national social accident agrees to provide personal exoskeletons to qualifying beneficiaries)
  • CGEN +3.4% (enters research collaboration with Mount Sinai on novel Myeloid Immuno-Oncology target)

Analyst comments:

  • AMED +6.6% (upgraded to Buy from Neutral at Mizuho)
  • HLS +3.7% (upgraded to Buy from Neutral at Mizuho)
  • TRHC +2.1% (initiated with an Overweight at First Analysis Sec)
  • TPR +1.4% (initiated with a Positive at Susquehanna)
  • EQIX +1.1% (upgraded to Overweight from Neutral at JP Morgan)
  • DPZ +1% (upgraded to Buy at Maxim Group)
  • DVN +0.8% (upgraded to Overweight from Equal-Weight at Stephens)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • PI -29.1%, OCLR -18.7%, TCAP -18%, CYH -15.6%, W -13.3%, W -13.3%, OSUR -12.5%, TEVA -12.5%, HABT -10.9%, NWL -10.7%, ATRC -10.5%, CIE -10%, THS -9.6%, KEM -9.1%, FEYE -8.7%, GPRO -8.7%, SYMC -7.3%, EPZM -7.1%, CAKE -6.7%, MLM -5.7%, TSLA -5.3%, GNK -5%, HBI -5%, PES -5%, ALIM -4.8%, CLVS -4.6%, GOLD -4.4%, DYN -4.3%, QUOT -3.9%, QRVO -3.8%, INSY -3.7%, PBH -3.7%, FIT -3.5%, WPZ -3.3%, BT -3.2%, CAVM -3.1%, AVP -3%, SAGE -3%, BIOS -2.9%, FATE -2.8%, ADAP -2.8%, BBRG -2.5%, CNAT -2.4%, CHK -2.3%, CTRP -2.2%, GPRE -1.9%, GERN -1.8%, HIVE -1.7%, WPX -1.7%, KHC -1.5%, NUS -1.4%, EPD -1.3%, TICC -1.3%, YELP -1.2%, FB -1.2%, NICE -1.1%, TDOC -1%, XPO -1%, TWI -1%, ERII -0.9%, GCP -0.9%, PAH -0.9%, SNY -0.9%

Select Optical related names showing weakness:

  • FNSR -3.1%, ACIA -2.9%, CIEN -1.8%, AAOI -1.2%, FN -1%

Other news:

  • NTLA -8.9% (prices underwritten public offering of 6.25 mln shares of its common stock at a public offering price of $24.00 per share)
  • ASMB -4.7% (prices $2.21 mln shares of common stock at $27.25 per share)
  • AQN -0.9% (Algonquin to purchase 25% interest in Atlantica Yield from Abengoa at price of $24.25 per share, $2,430 million implied total equity value; AQN to sell on a bought deal basis, 37.8 mln common shares at a price of CAD$13.25/share)

Analyst comments:

  • SQ -1.7% (downgraded to Hold from Buy at Stifel)
  • CRTO -1.3% (downgraded to Hold from Buy at Jefferies)
  • ZBH -0.5% (downgraded to Neutral from Overweight at Piper Jaffray)

>>> Ralph Lauren beats by $0.10, beats on revs; guides Q3 rev above ests; reaffi

Ralph Lauren beats by $0.10, beats on revs; guides Q3 rev above ests; reaffirms FY18 sales ex-FX; raises margin gudiance
  • Reports Q2 (Sep) adj. earnings of $1.99 per share, $0.10 better than the Capital IQ Consensus of $1.89; revenues fell 8.6% year/year to $1.66 bln vs the $1.64 bln Capital IQ Consensus, driven by initiatives to increase quality of sales, reduce promotional activity, and elevate our distribution, as well as brand exits and lower consumer demand. The second quarter revenue decline is in line with the Company's guidance of a 9%-10% revenue decline, excluding ~40 basis points of negative foreign currency impact. FX benefited revenue growth by ~40 basis points in the second quarter, which is better than guidance, as foreign exchange rates moved favorably during the quarter.
    • North America Revenue. North America revenue in the second quarter decreased 16% to $877 million. The decline was due to lower sales in both the retail and wholesale channels, driven by distribution and brand exits, a strategic reduction in shipments and promotional activity to increase quality of sales, as well as due to lower consumer demand. On a constant currency basis, comparable store sales in North America were down 9%, including a 6% decline in brick and mortar stores and an 18% decrease in e-commerce, primarily due to a planned reduction in promotional activity and lower traffic.
  • In the third quarter of Fiscal 2018, the Company expects net revenue to be down 6%-8%, excluding the impact of FX. Foreign currency is expected to have ~160-170 basis points of benefit to revenue growth in the third quarter of Fiscal 2018. Consensus calls for Q3 rev down 6.7% (guide down 6.4-4.3%). Operating margin for the third quarter of Fiscal 2018 is expected to be down 50-70 basis points, excluding the impact of foreign currency. Foreign currency is estimated to benefit operating margin by ~10-20 basis points in the third quarter.
  • For Fiscal 2018, the Company continues to expect net revenue to decrease 8% to 9%, excluding the impact of FX. Foreign currency is now expected to have ~80 basis points of benefit to revenue growth in Fiscal 2018 versus previous guidance of minimal impact, given recent movements in foreign exchange rates. Based on the first half performance, the Company now expects operating margin for Fiscal 2018 to be 9.5%-10.5%, excluding the impact of foreign currency, and versus previous guidance of 9.0%-10.5%. Foreign currency is now expected to have minimal impact on operating margin for Fiscal 2018, versus previous guidance of 40-50 basis points of pressure, due to recent movements in foreign exchange rates.