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Antitrust lawyers don't see DOJ rationale for forcing AT&T to sell off CNN in Time Warner deal

  • Antitrust lawyers were scratching their heads Wednesday over reports that the government is insisting that AT&T sell key assets to win approval to buy Time Warner.
  • Government opposition to mega-mergers like the proposed $85.4 billion AT&T-Time Warner deal usually center on concerns that they will reduce competition and raise prices for consumers.
  • But antitrust lawyers said, in recent years, the remedy for those concerns in media industry mergers has been consent decree with the acquiring company promising not to engage in anti-competitive behavior.

Antitrust lawyers were scratching their heads Wednesday over published reports that the Justice Department is insisting that AT&T sell its CNN cable network, or its DirecTV satellite television unit, if it wants to win approval to buy Time Warner.

"If that is indeed the case, to me it would seem to be at least a break in recent precedent," Kevin Arquit, co-head of the antitrust practice at Weil, Gotshal & Manges, told CNBC's "Power Lunch."

Government opposition to mega-mergers like the proposed $85.4 billion AT&T-Time Warner deal usually center on concerns that they will reduce competition and raise prices for consumers. The move would combine Time Warner's vast collection of content, from movies to cable TV networks, with AT&T's sprawling network of cable, satellite and phone subscribers.

But antitrust lawyers said that, in recent years, the remedy for those concerns in media industry mergers has been a consent decree with the acquiring company promising not to engage in anti-competitive behavior.

"The Department is committed to carrying out its duties in accordance with the laws and the facts," a Justice Department spokesman told CNBC. "Beyond that, the Department does not comment on any pending investigation."

The government's reported divestiture demands came as a surprise to investors, who sent Time Warner shares down more than 6 percent on fears the deal might not go through. AT&T's stock rose more than 1 percent.

AT&T was apparently expecting the deal to go through without complications, saying previously that it expected the acquisition to close by the end of this year.

"Until now, we've never commented on our discussions with the DOJ," Randall Stephenson, AT&T's chairman and CEO, said in a statement. "But given DOJ's statement this afternoon, it's important to set the record straight. Throughout this process, I have never offered to sell CNN and have no intention of doing so."

The surprise stemmed in part from comments last year from the head of the Justice Department's antitrust division, Makan Delrahim, who said in a TV interview shortly after the deal was announced that he did not view AT&T's plan to buy Time Warner as "a major antitrust problem."

Delrahim was nominated by President Donald Trump to head the Justice Department's antitrust division and confirmed in September.

Delrahim, a former attorney and registered lobbyist, has expertise in media industry mergers. He was registered as a lobbyist for Comcast in 2009 and 2010, before Comcast's deal to buy NBC Universal, and was registered as a lobbyist for AT&T in 2007, according to opensecrets.org.

Thursday's reports also touched off speculation that the Justice Department's insistence on a divestiture could have political overtones, after Trump's outspoken criticism of CNN's coverage of his administration. Trump accused CNN and other media outlets of unfair coverage. Last year on the campaign trail, Trump, criticized the proposed AT&T-Time Warner deal and vowed that as president his Justice Department would block it.

"To have at the 11th hour this, you know, this development is troubling," Adonis Hoffman, former chief of staff and senior legal advisor to the FCC commissioner, told "Closing Bell."

"We know that the president has had problems with CNN," he said. "Based on the CNN reporting, that's understandable. But the fact that this is a vertical merger with very little competitive impact would seem to me that there would be a green light on the regulatory front."

WATCH: AT&T responds to DOJ regarding CNN sale

— Reuters contributed to this article.

Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.

Correction: Adonis Hoffman appeared on CNBC's "Closing Bell." An earlier version misstated the name of the program.