Judge rebukes DOJ in AT&T-Time Warner ruling, analyst says

Key Points
  • Federal Judge Richard Leon did not impose conditions on the deal.
  • But, in a surprising move, he did advise the Department of Justice not to contest the decision.
  • The DOJ released a statement saying it was "disappointed" with the decision.
  • The ruling suggests future large-company mergers might be a possibility.
A pedestrian walks in front of an AT&T location in New York.
Scott Mlyn | CNBC

In his ruling approving AT&T's bid to purchase Time Warner, U.S. District Court Judge Richard Leon advised the Department of Justice to not try and contest the ruling, which was unexpected, according to an analyst.

"I think the biggest surprise here is Judge Leon advising the DOJ not to try to contest this ruling," Craig Moffett told CNBC.

"That is a very real rebuke of the DOJ here," said Moffett, founder of MoffettNathanson, a research firm, said Tuesday on "Closing Bell."

The $85.4 billion deal comes with no conditions and changes ownership of cable channels such as HBO and CNN.

The ruling also comes with wide-ranging implications about what will be allowed in future mergers. A section of the Clayton Antitrust Act prohibits mergers and acquisitions when the effect "may be substantially to lessen competition, or to tend to create a monopoly."

The Department of Justice released a statement after the decision, saying, "We are disappointed with the Court's decision today. We continue to believe that the pay-TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner. We will closely review the court's opinion and consider the next steps in light of our commitment to preserving competition for the benefit of American consumers."

Moffett said the win wasn't easy for AT&T, and since the company is so large Time Warner will only account for about 15 to 20 percent of the telecommunication company's revenue.

"Getting Time Warner would be good for AT&T's income statement, but bad for AT&T's balance sheet," Moffett said. He pointed out that AT&T is one of the most indebted companies in the world — about $249 billion in debt. Buying Time Warner will not ease this burden.

"That's a risky proposition," Moffett said.

Former AT&T Chairman and CEO David Dorman agreed it was a big bet, but one that he said, "makes a lot of sense."

"AT&T is betting on the media business being a complementary business," Dorman said Tuesday on "Closing Bell."

"They understand offering products to customers is a dumb pipe," he said. "It's not as exciting as offering applications on that pipe."

Shares of AT&T fell about 2 percent in after-hours trading. Meanwhile, Time Warner stock was was up about 5 percent.

The Department of Justice declined to comment and AT&T did not immediately respond to a request for comment.