AT&T and the Justice Department could be on their way to a major court battle, which one analyst believes the company stands a strong chance of winning.
The fight centers on AT&T's hopes to acquire Time Warner and news Wednesday that the government wants the company to first sell Turner Broadcasting, which includes CNN, or sell DirecTV. AT&T CEO Randall Stephenson said the company has no intentions of divesting itself of those holdings.
Paul Gallant, a Washington analyst at Cowen Research, thinks the company won't have to.
"If this does go to court, we think AT&T holds a strong position and would likely prevail," Cowen said Thursday in a note to clients.
The company has three advantages, according to Gallant: The deal is "vertical" so it would be difficult to prove harm to the marketplace as it does not eliminate a rival; the DOJ would bear the burden of proof that the deal is anti-competitive; and the department's earlier attempts to negotiate behavioral conditions for approval indicate that it knows a legal case isn't strong.
Gallant compared the saber-rattling over the Turner properties to President Donald Trump's earlier threat to pull the broadcasting license of CNBC-parent NBC over what he deemed as unfair news coverage.
Trump has a notoriously contentious relationship with CNN, which he often takes to task for "fake news."
"We think AT&T's merger approval chances would be further improved if there's meaningful criticism in the coming days of Trump possibly using antitrust law to target CNN, and either the president or DOJ decide a court challenge isn't worth it, especially with DOJ likely to lose the court case," Gallant wrote.
The deal is valued at $85 billion and had been expected to close by the end of the year. Sources have told NBC News that AT&T previously had offered to sell off CNN, but was told that won't be enough.
The DOJ said it does not comment on ongoing matters and has declined comment on the AT&T-Time Warner deal as well.
"The Department is committed to carrying out its duties in accordance with the laws and the facts," it said in statement. "Beyond that, the Department does not comment on any pending investigation."
Later, a government official familiar with the discussions told CNBC that the DOJ presented AT&T with several options by which it might be willing to satisfy antitrust concerns, but never demanded a CNN sale.
AT&T and Time Warner declined to comment.
While seeing the department's case as weak, Gallant said the potential for a court battle could extend the timeline for closing.
"While we view the DoJ's position as at least partially politically motivated, they do have the power to at least elongate the acquisition process," he said. "Deal risk has clearly gone up."
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Correction: This story was revised to correct that the owner of DirecTV is AT&T.